Court Opinion

ID: 9858974
Source: CourtListenerOpinion
Date Created: 2023-09-24 17:55:01.608623+00
Date Added: 2024-06-11T10:13:47.700150
License: Public Domain

HAWTHORNE, Justice
(dissenting).
I am in full accord with the reasoning and conclusion of the late Robert D. Jones, district judge in this case, so well expressed in his written reasons for judgment that *543I adopt them as my own and make them my dissent. Judge Jones said:
“Petitioner, Public Housing Administration, an agency of the United States of America, with authority to sue and be sued under its own name (42 U.S.C. 1403, 1404a, 1405) has filed this suit against the Housing Authority of the City of Bogalusa, a public corporation created and established under the Housing Authority law (R.S. Title 40, Section 381 et seq.). The Federal Authority will hereinafter be referred to as ‘Administration’, while the State, or local authority, will hereinafter be referred to as ‘Housing Authority’.
“The allegations of the petition set forth that the Housing Authority under the provisions of R.S. 40:451 was authorized to accept contribution grants, or other financial assistance, from the Federal government, for and in aid of housing projects within its area of operation, and to do all things necessary to secure the financial aid and cooperation of the Federal government in the construction, maintenance and operation of low rent housing projects, and that the Administration was authorized by the United States Housing Act of 1937 to make loans to State agencies for said purposes (42 U.S.C. Secs. 1409-1410); that the Administration entered into an annual contribution contract with Housing Authority for the development of low rent housing projects Nos. S-La-24-1 and La-24-2, and under the terms of the contract the Administration made loans to Housing Authority and paid annual contributions of subsidies to Housing Authority, thereby assisting in achieving and maintaining the low rent character of the projects; that under the provisions of the annual contributions contract Housing Authority was required to carry fire and extended coverage insurance on the low rent housing projects, and that Housing Authority was required to advertise for competitive bids for such insurance and to award same to the lowest responsible bidder. It was further set forth that the lowest bid was to be determined upon the basis of net cost to Housing Authority. Net cost is further defined in the contract to be the gross deposit premium, plus the cost of insurance against the hazards, if any, of assessments, less any anticipated dividend, and the dividend payment and assessment record of the insurer for the previous ten years; further La. R.S. 40:474 provides that Housing Authority provide for insurance in stock or in mutual companies; that in accordance with said annual contribution contract the Housing Authority advertised for bids for fire and extended insurance on the above mentioned projects and did receive bids from both stock and mutual insurance companies, and that the lowest bid on the basis of net cost to said Housing Authority for such insurance was submitted by Liberty Mutual Fire Insurance Company; that irrespective *545of the bid of Liberty Mutual Fire Insurance Company being the low bid, Housing Authority refused to accept same and advised Administration it intended to award the fire and extended coverage insurance to Reliance Insurance Company, a stock insurance company. The petitioner Administration further set forth that any extra expense for insurance on account of its annual contribution contract with Housing Authority would have to be borne by Administration in the form of increased annual contributions. Accordingly, the petitioner prayed that Housing Authority be required to award the contract for fire and extended coverage insurance to the lowest responsible bidder, and that said lowest responsible bidder was the Liberty Mutual Fire Insurance Company. A supplemental and amended petition was subsequently filed making the Liberty Mutual Fire Insurance Company, a foreign mutual insurance company, defendant in said cause, and the Reliance Insurance Company, a foreign stock insurance corporation, a defendant in said cause.
“All of the defendants filed answer and many stock insurance companies of the State of Louisiana filed an intervention, and the defense raised by all of them is substantially the same, as follows: Respondents admitted the contract between Administration and Housing Authority, and that the projects described in the petition were constructed; and further admitted that the contribution contract called for Housing Authority to accept the lowest responsible bid. However, all of the respondents except Liberty Mutual Fire Insurance Company denied that the lowest responsible acceptable bid was submitted by Liberty Mutual Fire Insurance Company. Respondent Housing Authority admitted that it refused to accept the bid of Liberty Mutual Fire Insurance Company and that its refusal was based on Section 12 of Article 4 of the Constitution of the State of Louisiana, which prohibits the State, or any political corporation thereof, awarding fire and extended coverage insurance to mutual insurance companies. Respondents further set forth that the provisions of R.S. 40 :474 (11) of the State of Louisiana authorizing Housing authorities of the State to procure insurance in mutual companies is unconstitutional because of the prohibitions contained in Article 4, Section 12 of the Constitution of the State of Louisiana. Accordingly, all the respondents prayed that the Court should declare that the awarding of the bid to the Reliance Insurance Company, a stock company, conformed with the requisites of the law and was the lowest responsible legally acceptable bid.
242 La. — 18
“At the time of the trial a stipulation of facts was entered into by the respective parties to this suit, in which Administration was admitted to be an agency of the United States of America and administers the functions of the United States Housing Authori*547ty, and that Housing Authority is a public corporation and has the right to contract with Administration for financial assistance in connection with low rent proj ects; that Administration has entered into an annual contribution contract with Housing Authority for the development of two low rent housing projects and has loaned Housing Authority an amount in excess of $1,000,-000.00, of which $31,569.13, is now outstanding, and has paid annual subsidies, or contributions, under the contract to Housing Authority in the total amount of $173,485.-92; that the annual contribution contract requires Housing Authority to insure said low rent housing projects against loss by fire, and further requires Housing Authority to advertise for competitive bids and to award such insurance to the lowest responsible bidder; that Housing Authority advertised for competitive bids and the lowest responsible bid under the terms of the contract was submitted by Liberty Mutual Fire Insurance Company, provided Housing Authority may legally insure in a mutual insurance company, and in the event Housing Authority may not legally insure its property with a mutual insurance company, the most responsible bid was submitted by Reliance Insurance Company.
“It was further stipulated that the type of policy to be written by Liberty Mutual Fire Insurance Company in connection with its bid was non-assessable, and that the holder of the policy was not subject to any contingent liability, nor liable to any assessment, and that by virtue of the policy the policy holder was a member of the company and entitled to vote in person or by proxy at all meetings of the company.
“From the above résumé of the pleadings, together with the stipulation of facts, the question presented is^ — may the State and its political corporations, or subdivisions (such as Housing Authority) insure their property under a fixed premium non-assessable contract made with a mutual insurance company? It is, of course, the contention of Administration that such might be done without violating the provisions of Article 4, Section 12 of the Louisiana constitution, while it is the contention of the defendants that to insure State property under such conditions violates said provisions of our constitution.
' “The pertinent provisions of Article 4, Section 12 necessary to a decision of this cause are as follows: (1) 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; (2) 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; (3) Nor shall the State nor any political corporation thereof, assume the liabilities of any *549political, municipal, parochial, private or other corporation or association whatever, except as otherwise provided in this Constitution; (4) Nor shall the State undertake to carry on the business of any such corporation or association, or become a part owner therein.
“Before determining whether or not the insuring of State property in a mutual insurance company where the policy is non-assessable contravenes the above provisions of our Constitution, I consider it appropriate to point out the historical background which caused these provisions to be incorporated in our Constitution. In the early part of the last century, not only Louisiana, but practically every other State in the Union, enacted constitutional provisions to prohibit the investment of State funds, or credits, to private enterprise, for the reason that at that time there had been extravagant spending of public funds by local subdivisions of government in aid of enterprises apparently devoted to quasi public purposes, but actually engaged in private business, such businesses being railroads, canals, banks, etc. (See ‘A Study of the State Government of Louisiana’, Melvin Evans, Louisiana University Press 1931). See also Day v. Buckeye Water & Conservation District, 28 Ariz. 466, 237 P. 636.
“I think it further proper to point out where there is a limitation of power by a constitutional provision the Court should certainly give consideration to the evil that was sought to be corrected by said Constitutional provisions. Thus, when the above provision was incorporated in our Constitution the evil sought to be corrected was the depletion of the public treasury by the expenditure of public funds for quasi public enterprises but really private ventures, as herein above mentioned, but, it was most assuredly never in the mind of the framers of our constitution that the State should be prohibited from obtaining goods and securing the necessary services to carry out the functions of government. Here the local Housing Authority is not attempting to loan, pledge or grant the funds, credit or property of the State to any person or persons or association, public or private, in contravention of the first paragraph of Article 4, Section 12 of our Constitution; all the local Housing Authority is doing is purchasing a policy of insurance, non-assessable in character, which insures the public property against loss of hazards by fire; there is no contingent liability upon Housing Authority, nor can any future assessment be levied against it for said insurance, and as a matter of fact, the insurance is being obtained at a much lower cost to Housing Authority from this mutual company than it can be obtained from any other company.
“Further than this, the purchase of a policy from a mutual insurance company does not constitute subscribing to the capital stock of any corporation or association *551whatever, or for any private enterprise — in the first place, a mutual company issues no stock. It is true that the policy holders of a mutual company are members thereof and have certain voting rights, but they do not purchase, or own, stock in the company as such. Counsel for defendant Housing Authority cites Cooley’s Briefs on the Law of Insurance Vol. 1, p. 69 2d Ed. to the effect that the members and stockholders of a mutual insurance company are identical, but I note that Cooley’s Constitutional Limitations Vol. 1, p. 469 further states ‘by becoming a member of a mutual insurance company a municipality does not become the owner of any stock or bonds of the company, in violation of a constitutional provision prohibiting any municipality from owning any stock or bonds of any association or corporation; and by giving premium notes for the payment of assessments to meet losses incurred by such an insurance company, the municipality does not loan its credit to the company in violation of a constitutional provision against doing so.’ Counsel for defendants further rely on the case of Wermuth v. Minden Lumber Co., 129 La. 912, 57 So. 170, wherein mutual insurance companies were classified as corporations, and that the members of the corporation managed its affairs, and the case of Union Mutual Fire Insurance Co. of Cincinnati, Ohio v. Standard Guano & Chemical Mfg. Co., 7 Orleans App. 485, wherein the Court held for all intents and purposes members of a mutual insurance company are stockholders. I note in the Wermuth case Supra the plaintiff was the liquidator of the insurance company, and in the petition this mutual insurance company was designated as a corporation, and the Court in referring to it as a corporation pointed out that the liquidator had so designated it. The liquidator was seeking in that case to recover refunds on premiums paid to the defendant, contending that the defendant’s employees had paid the premiums and that the defendant was not the insured and was not a member of the company and entitled to the dividends. Although the Court held that the defendant was a member of the mutual company and entitled to receive the refund of the premium, nowhere in the opinion did the Court refer to the defendant as a stockholder of the insurance company as a result of its membership. The Union Mutual Fire Insurance Co. Cincinnati, Ohio case, Supra, was a suit by a trustee of a mutual insurance company in liquidation to force the payment of an assessment of policy of mutual insurance issued to the defendant- — the only question before the Court in that case was whether the defendant, a member of a mutual company, was liable for the assessment provided by the contract of insurance. The Court held that the policy holder was liable for the assessment under the terms of the contract ; the Court did not hold a stockholder and a member were one and the same thing, *553and, at any rate, if it could be said that a member and a stockholder were identical, such holding was not necessary to a decision in the case. At any rate, this is not a Supreme Court decision and I do not feel bound by it. As a practical matter, I am of the opinion that a member of a mutual insurance company and a stockholder are not identical. A stockholder obtains shares of stock which are transferrable by him, while a member of a mutual insurance company obtains no shares, all that he obtains is the policy of insurance which is not transferrable, except with the written permission of the company. Defendant further contends that the purchase of mutual insurance by the Housing Authority would constitute an assumption by it of the liabilities of a private corporation, or association, in violation of the Constitution. As heretofore pointed out, the premium for the insurance was fixed at a specified amount and the policy non-assessable. Under these circumstances Housing Authority herein is assuming no liabilities of Liberty Mutual Fire Insurance Company, it simply purchased the insurance for a fixed monetary consideration for a fixed period of one year and no assessments could be levied against it, and it thereby assumed no liabilities in connection with Liberty Mutual Fire Insurance Company.
“It is contended by Counsel for defendant that should the local Housing Authority purchase mutual insurance said Authority would thereby be undertaking to carry on the business of a private corporation, or association, or become a part owner therein, in violation of the Constitution of Louisiana. I note the last, or fourth prohibition, in Article 4, Section 12 is directed at the State, to the effect that it shall not undertake to carry on the business of any such corporation, or association, or become a part owner therein. In other words, this provision is limited to the State alone, while the other prohibitions are directed at the State or any political corporation. While it is true that the policyholders of a mutual company are members of said company, and have the right to vote for a board of directors, they do not actually carry on the business of the corporation, nor are they a part owner therein. The business of the company is carried on by the Board of Directors and the policyholders are not part owners but are simply entitled to a rebate on the premium provided the experience of the company justified is. Admitting that being entitled to a rebate on the premium constitutes a dividend and sharing in the profits of the company, yet, being a part owner of a company contemplates something more than being entitled to a dividend or sharing in the profits, viz liability for the losses of the company. Thus, as in the present case where the policy is a non-assessable one, then there can be no liability for losses on the part of the company, and consequently, the policy holder is not a part owner of the company.
*555“I consider it pertinent to observe that eleven States, whose Constitutions are very similar to our own and were enacted for the same purpose, have held that the prohibitions in their constitutions did not preclude the State, or its political subdivisions, insuring their property in a mutual insurance company. Louisville Board of Ins. Agents v. Jefferson County [etc.], 309 S.W.2d 40 (Ky.); McMahon v. Cooney, 95 Mont. 138, 25 P.2d 131, Clifton v. School Dist. No. 14 [Russellville], 192 Ark. 140, 90 S.W.2d 508; Miller v. Johnson, 4 Cal.2d 265, 48 P.2d 956; Fuller v. Lockhart, 209 N.C. 61, 182 S.E. 733; Burton v. School Dist. No. 19, 47 Wyo. 462, 38 P.2d 610, City of Macon v. Benson, 175 Ga. 502, 166 S.E. 26; Downing v. School Dist. of City of Erie, 297 Pa. 474, 147 A. 239; Johnson v. School Dist. No. 1 of Multnomah County, 128 Or. 9, 270 P. 764, 273 P. 386, rehearing denied, 128 Or. 18, 273 P. 386; French v. Mayor of City of Millville, 66 N.J.L. 392, 49 A. 465, aff’d, 67 N.J.L. 349, 51 A. 1109 (1902), and State of Ariz. v. Northwestern Mutual Ins. Co., No. 6400, 66 Ariz. 50, 340 P.2d 200, but attached to and forming a part of the petitioner’s brief.
“While it is true that the decisions from the commonlaw states are not necessarily controlling in this State, yet when the constitutional limitation in each State was enacted for the purpose of correcting the same evil that existed in the commonlaw states as existed in our own State, then I consider that much weight under the circumstances should be accorded these common-law decisions. In the case of Lewis v. Independent School Dist. v. City of Austin, 139 Tex. 83, 161 S.W.2d 450, a contrary view was taken, with which I do not agree. Counsel for defendant sets forth in brief that the Attorneys General of Louisiana have applied Article 4, Section 12 of the Constitution to the purchase of mutual insurance and filed in the record an opinion rendered by Plonorable Eugene Stanley, Attorney General, on July 29, 1943, and published in 'Opinions of the Attorney General’ 1942-1944 P. 642. It is true in this opinion that the Attorney General stated that he did not think it made any difference whether the assessment liability was fixed or not, however, I note in ‘Opinions of the Attorney General’ of June 14, 1934, 1934-1936, p. 547, it was stated that there was no constitutional prohibition of the State and its political subdivisions entering into contracts of mutual insurance if the contracts of insurance were for a fixed definite and determined premium consideration. To this same effect were three other opinions of the Attorney General’s office where the policies issued were non-assessable. (Opinions of the Attorney General 1940-1942, pages 1568-1571) dated December 15, 1941, December 19, 1941, and December 20, 1941. Thus, in the absence of jurisprudence on this proposition, the Attorneys General of this State have given *557their opinion as to whether the State in purchasing mutual insurance where the policy is non-assessahle, have violated the prohibitions contained in Article 4, Section 12 of our Constitution. Four of them have stated that the purchasing of such insurance by the State, or its political subdivisions, is not in violation of the provisions of Article 4, Section 12 of the Constitution, while only one of them has stated that it does.
“As I am of the opinion that the securing of this non-assessable policy of insurance by Housing Authority does not violate the provisions of Article 4, Section 12 of the Louisiana Constitution, for the reasons heretofore stated, I will sign a judgment when presented to me, declaring that the Housing Authority of the City of Bogalusa is required by its contract with the Public Housing Administration to award the contract for fire and extended coverage insurance on projects La-24 — 1 and La-24 — 2 to the lowest responsible bidder, which I determine to be the Liberty Mutual Fire Insurance Company, and that the purchase of such insurance from the Liberty Mutual Fire Insurance Company is not prohibited by the constitution and laws of the State of Louisiana.”