Court Opinion

ID: 9858973
Source: CourtListenerOpinion
Date Created: 2023-09-24 17:55:01.603368+00
Date Added: 2024-06-11T10:13:47.479129
License: Public Domain

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 corportation 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 con*523tract 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, *525municipal, 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 yardstick of degree of participation in for*527bidding 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.2 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 *529Constitution, that state agencies did not violate the respective restraints in purchasing policies issued hy 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 District of Erie, 297 Pa. 474, 147 A. 239 (1929); Burton v. School District No. 19 et al., 47 Wyo. 462, 38 P.2d 610, (1934). Only one State Supreme Court, that of our neighboring State of Texas, has announced views similar to those expressed by the Court of Appeal herein. See Lewis v. Independent School Dist. of City of Austin, 139 Tex. 83, 161 S.W.2d 450 (1942).
In view of counsel’s contention that the Court of Appeal erroneously applied the Fourth Clause of Section 12 of Article 4 of the Constitution to this case, we direct our immediate attention to the clauses contained in the Article in an effort to ascertain what it aims to prohibit and what is actually prohibited by the language thereof. The first clause, which forbids the pledging or granting to any persons, associations or corporations, public or private, the funds, credit, property, or things of the State of any of its political corporations, is perfectly clear and, as stated by the Court of Appeal, needs no interpretation. The same is true of the second clause, prohibiting the State or any political corporation to purchase or subscribe to the capital or stock in any corporation or association or for any private enterprise. Likewise the third clause, as found by the Court of Appeal, clearly proscribes the assumption by the State or any of its political corporations of the liabilities of any type of corporation or association, except as otherwise provided in the Constitution.
But, say relators’ counsel and counsel for amici curiae, who has favored us with a brief supporting relators’ contentions, the fourth clause of Section 12, stating “ * * nor shall the State undertake to carry on the business of any such corporation or association, or become a part owner therein; * * * ” can only apply to the State and not to a state agency like the Housing Authority. In substantiation of this, counsel refer to the general rule that limitations imposed by the Constitution will not he enlarged by construction and that such re*531straints will be construed strictly in conformity with the language used by the writers of the Constitution. Many cases are cited in support of this position and, chiefly, certain dicta, pertaining to the construction to be given the language of Section 12 of Article 4 of the Constitution, contained in the opinion of the Court of Appeal, First Circuit, in Stokes v. Harrison, La.App., 109 So.2d 506 (a case involving the proper interpretation of Section 2 of Article 4 of the Constitution), which was quoted with approval by this Court in its opinion on writ of review. (See 238 La. 343, 359, 115 So.2d 373, 379).
Constitutional limitations, like those set forth in Section 12 of Article 4, are to be construed so as to give full meaning and effect to the language employed therein. “One part may qualify another so as to restrict its operation, or apply it otherwise than the natural construction would require if it stood by itself; but one part is not to be allowed to defeat another, if by any reasonable construction the two can be made to stand together. Every provision should be construed, where possible, to give effect to every other provision.” 1 Cooley’s Constitutional Limitations (8 ed.) 129.
The Court of Appeal did not say, in this case, that the fourth clause of the constitutional provisions, which prohibits the State from carrying on business (either as manager or part owner) was to be extended to state agencies. What it did say was that the provisions of the entire Section 12, when read as a whole, “ * * * clearly bans any participation by the State or its political subdivisions in the ownership and operation of a private enterprise * * * ”. This conclusion is accurate in our opinion and, hence, it matters not that the fourth clause of Section 12 of Article 4 applies only to the State, for it neither adds nor detracts from the effectiveness of the manifest meaning and purpose of the first three clauses which, in sum, reprobate investment by any state agency in a private business.3
*533Being of this view, it becomes unnecessary to engage in a discussion of relators’ specification that the Court of Appeal erred in not considering the history of the constitutional prohibitions which, assertedly, were attributable to the panic of 1837 and emanated from the use of public funds by political agencies for private enterprise. It is enough to say that the constitutional aim is evident and explicit; it forbids the use of public funds for private enterprise.
Accordingly, we address our attention to the main question in the case — does a state agency violate the constitutional proscription when it becomes a member of a mutual insurance company as a consequence of a contract under which the company insures the property of the agency in consideration of the payment of a single premium, it being agreed that, although the agency may participate in dividends in the company, it shall not be assessed for any losses which may be sustained?
To determine this question it is of vital importance to understand the nature of a mutual insurance company. According to the by-laws of Liberty, which are in evidence, all policyholders are members of the company and no one may be a member unless his policy is “in force”. The sole management of the company is vested in the members, each member being entitled to one vote per policy and any organization, such as Housing Authority, which becomes a member may appoint an individual to represent or act for it in the affairs of the company. The directors and the chief executive officers of the company must be members, i. e., policyholders, and a corporate member (such as Housing Authority) would be eligible for such offices through its representative. Dividends are payable at the discretion of the Board of Directox'S and these may be distributed, even to former members. Policies issued by the Company may, in the Board’s discretion, be either assessable or non-assessable and the rights of members holding each type of policy are the same with respect to management and sharing of profits. All assets of the Company are owned by the members and surplus may be distributed to the members or former members in whole or in part at the Board’s discretion.
The by-laws of Liberty conform in all pax'ticulars with our law relative to domestic mutual insurers as set forth in R.S. 22:121-132. These provisions indicate that the captial of a mutual company is its surplus and this surplus is acquired, according to R.S. 22:124, either by payment in advance of premiums by policyholders and members of the mutual insurer or by borrowing a sum sufficient to defray the reasonable expenses of its organization and to meet the requirements of R.S. 22:121. By R.S. 22:131, non-assessable policies may be issued upon compliance with certain conditions.
*535As found by the Court of Appeal, it is well established that a mutual insurance company is a cooperative enterprise in which the members are both insurers and insured; the Company is owned and managed by the policyholders; the business is conducted for their benefit; they are the owners of the profits and the surplus and thus a policyholder has rights, both as an insured and as a co-owner of the assets of the Company. See 44 C.J.S. Insurance § 104, page 644; Appleman’s Insurance Law and Practice, Chapter 344, Section 10047, page 100; May on “Insurance”, Vol. 2, page 1280. In Cooley’s Briefs on the Law of Insurance, Vol. 1, (2d) Ed. page 68, it is stated:
“The members and stockholders of a mutual insurance company are, therefore, identically the same. That is to say, a stockholder of a mutual insurance company is simply one who has paid into the capital of the company by way of premiums and who is responsible for its losses to that extent and who is entitled, when such premiums shall have been accumulated to a larger sum than is required to pay the losses to pro rata division thereof as profits.” 4
Counsel for relators nevertheless argue that it is not true that the purchaser of a non-assessable mutual policy occupies the dual position of an investor and purchaser of insurance. They say that such a purchaser makes no investment in the company nor engages in the insurance business. But, if this be so, we wonder how and by what method of reasoning the member and policyholder becomes entitled to his share of the distributed earnings of the Company and to its assets upon dissolution. What counsel are really professing is that, since the policyholder and member turns over his money to the mutual mainly for insurance protection and invests in the capital of the company in a most limited sense — that is— with the hope of securing a reduction in insurance costs by participation in the distribution of the company’s profits, a state agency does not violate the spirit of the constitutional prohibition by subscribing to *537mutual membership, even though it may violate the letter of the limitation. But, as correctly stated by the Court of Appeal, “it is not a question of degree of ownership in the association which is denounced by the Constitution but any ownership whatever is prohibited.” [129 So.2d 876.]
Although counsel for relators attempt to show that there is no difference, practically or legally, between the purchasing of insurance in a stock company and becoming a stockholder and member of a mutual company, we think the difference in status is plain. Purchase of insurance protection in a stock company is a transaction under which no liability whatever is assumed by the purchaser beyond the amount of the premium and he, of course, acquires no interest whatever in the insurance company. Therefore, if the company should fail before the term of insurance has expired, the policyholder becomes its creditor for the return of the part of the premium for the time during which he has not had coverage.
But the policyholder of a mutual company has the relation of member and part owner of the company and this produces entirely different legal consequences from those which apply to a policyholder of a stock company. In the event of failure of the mutual before the expiration of the term of the policy, the policyholder and member does not occupy the status of a creditor of the company. On the contrary, his relation to the company is the same as a stockholder of a corporation and, if he has not paid his premium (or subscription to capital) in full, he becomes the debtor of the company for whatever amount of premium he originally agreed to pay.
The law on the subject of the liability of a mutual policyholder for the full amount of his premium on a non-assessable policy, in case of the company’s receivership or bankruptcy, seems to be unanimous. Indeed, it is apt to observe at this juncture that, although counsel for relators apparently lay great stress on the circumstance that this case involves a non-assessable policy, we perceive no real difference, insofar as the relations of the contracting parties are concerned, whether the policy be assessable or non-assessable. If it is assessable, the policyholder unquestionably becomes liable to a limited extent for the losses occasioned by the experience of the business which, in the case of a state agency, clearly violates (in our opinion) the constitutional proscription.5 If it is non-assessable, the premium which the member has paid is transferred to the surplus of the company which is essentially the capital (see R.S. 22:121 and R.S. 22:124(1)) and is earmarked for the same purpose, i. e., the payment of the insurance losses of the company. *539The legal status of the non-assessable and assessable policyholders is, therefore, the same. In both cases they are investors in a joint enterprise, a mutual enterprise, as it is called — the only difference relates to the extent of their liability for insurance losses, the non-assessable policyholder being liable for no more than the single premium and the assessable policyholder being responsible for a fixed amount over the premium paid.
As stated above, the relation of a mutual member and policyholder to the company, as a subscriber to its capital, finds full support in all the authorities relied on by counsel for Housing Authority. Buck v. Ross, 59 S.D. 492, 240 N.W. 858, decided by the Supreme Court of South Dakota in 1932, was a suit brought by a receiver of an insolvent mutual insurance company to recover against one of its policyholders and members for the full amount of the premium due on an employers’ liability insurance policy for the entire year of 1926. It appeared that the insurer went into receivership shortly after the policy was issued and, on May 29, 1926, the policyholder was notified that the insurance was no longer in effect. The policyholder, who had agreed to pay the full premium, thereafter tendered the amount which would have been due up to the date of receivership and defended on the ground that, since all protection and benefits which were to be given under the policy terminated after the appointment of the receiver, no liability was thereafter due for the unearned portion of the premium. The lower court sustained this defense but the Supreme Court reversed the decision on appeal, relying on a long list of pronouncements from other jurisdictions in support of its ruling,6 and quoting with approval from Gleason v. Insurance Co., 127 Tenn. 8, 151 S.W. 1030, 1033, as follows:
“Companies organized upon the -plan of this one (mutual company) have no capital stock. The cash paid in for premiums and the premium notes constitute their assets, and the policyholders or members sustain a relation to the company very similar to that of stock holders. They can no more recover premiums paid in, nor avoid premium notes, in case of insolvency, than could stock holders in an ordinary corporation recover money paid in subscription to stock or avoid notes given for subscription to stock. So, the insolvency *541of a company like this gives no right to a policyholder to recover any premium paid, or to avoid the payment of any premium note, so long as the company has outstanding debts.”
Also cited in Buck v. Ross was Illinois Coal Operators Mut. Employers’ Liability Insurance Co. v. Chicago etc. Coal Co., 217 Ill.App. 625, involving a mutual policy of employers’ liability insurance, wherein it was held that the promise of a person, who becomes a member of a mutual company, to pay premiums for one year constitute his contribution to the company’s capital; that he is liable for the full amount thereof and cannot avoid payment of the remainder of the premium by securing the cancellation of the policy. The South Dakota Supreme Court then commented:
“The statute referred to in this Illinois case simply confirms the general rule that premiums paid by members of a mutual insurance company constitute in effect, the capital of the company. The defendants, being members of this mutual company, and the company becoming insolvent, are liable for the entire amount of the premium they agreed to pay, even if benefits under the policy were terminated by insolvency.” [59 S.D. 492, 240 N.W. 861.]
We conclude, as did the Court of Appeal, that the purchase of mutual fire insurance, accompanied as it is with membership in a mutual insurance company, constitutes a subscription to capital by Housing Authority which contravenes Section 12 of Article 4 of the Constitution.
We have considered the impressive array of cases relied on by relators from the highest courts of other states and find, for the most part, that these authorities are based on the premise that it would be illogical to believe that the framers of the Constitution intended to prohibit the purchase of mutual policies by state agencies. For our part, we respectfully disagree and, like the Court of Appeal, we are of the view that, since the language of the constitutional prohibition is explicit, it is not a question of degree; the Constitution is not to be violated at all.
The judgment is affirmed.
HAWTHORNE, J., dissents with written reasons.
SANDERS, J., dissents and will assign written reasons.
HAMLIN, J., absent from the City.

. It is to be noted that, in most states, Administration waives the competitive bidding requirement and allows the state agency to negotiate with individual insurers regarding insurance rates. In Louisiana, Texas and Virginia, however, where the rates are controlled by law, no purpose is served by negotiation. For this reason, Administration continues to require competitive bidding in these states which, in view of the contractual stipulation, simply means that the fire insurance must be let to a mutual insurer,--if one submits a bid. Indeed, the only competitive feature of the bidding, if it could be called such, would result in the letting of the contract to the mutual having the best or highest dividend record during the anterior ten years.

. Administration contends that the Court of Appeal’s holding that the local Housing Authority cannot legally “purchase mutual insurance on a non-assessable policy” imposes a direct and substantial interference on the activity of a Federal agency and is thus violative of the supremacy clause, Article VI, Clause 2 of the United States Constitution. This point is raised for the first time in this Court, not heretofore being pleaded or argued either in the trial court or the Court of Appeal and, indeed, appears to be contrary to the stipulation of facts, wherein it was agreed that, if the bid of Liberty was found to be illegal, Reliance Insurance Company was the lowest responsible bidder. Suffice it to say that this Court will not consider this belated constitutional claim under its well-settled jurisprudence. See Marchese v. New Orleans Police Department, 226 La. 982, 77 So.2d 742 and State ex rel. McAvoy v. Louisiana State Board of Medical Examiners, 238 La. 502, 115 So.2d 833 and the authorities cited in these cases.

. Giving a literal interpretation to the language of the fourth clause of the prohibition contained in Article 4, Section 12 might produce strange consequences, for the first three clauses, after forbidding the State or any of any of its agencies to use its funds, credit, property or things of value for private purposes, or to purchase or subscribe to the capital or stock of any private enterprise, or to assume any of the liabilities of any such enterprise, declares, in the fourth clause, that the State shall not undertake “ * * * to carry on the business of any such corporation or association, or become a part owner therein * * * (Italics ours.) Thus, according to relators’ construction, the fourth clause would have the practical effect of exempting political corporations from becoming a part owner in private corporations or associations, despite the fact that the second clause prohibits such agencies from subscribing to the capital or stock in any private enterprise, and also that the first and third clauses forbid the use of public funds for -private investment or for a state agency to assume any liability of other corporations or associations.

. In the opinion of the late learned district judge, he noted that Judge Cooley, in his treatise on constitutional limitations, Vol. 1, p. 469, had stated that a municipality, by becoming a member of a mutual insurance company, did not violate a constitutional provision prohibiting municipalities from owning stocks 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 did not loan its credit to the company in violation of a constitutional provision against doing so. The statement referred to by the author is contained in a footnote on page 469 of his work, in which he cites French v. City of Millville, 66 N.J.L. 392, 49 A. 465 as authority. We do not regard the holding of the Supreme Court of New Jersey as having the approval of Judge Cooley. He merely states the fact of the holding and the questions disposed of.

. Yet, New Jersey holds otherwise. See French v. City of Millville, 66 N.J.L. 392, 49 A. 465.

. Carey v. Nagle, 5 F.Cas. 60, No. 2403; Corey v. Sherman, 96 Iowa, 114, 64 N.W. 828, 32 L.R.A. 514; Howard v. Palmer, 64 Me. 86, Commonwealth v. Massachusetts Mut. Fire Ins. Co., 112 Mass. 116; Nicol v. Murphy, 145 Mich. 424, 108 N.W. 704; Vanatta v. New Jersey Mut. Life Ins. Co., 31 N.J.Eq. 15; Conigland v. North Carolina Mut. Life Ins. Co., 62 N.C. 341, 93 Am.Dec. 89; Sterling v. Mercantile Mut. Ins. Co. of Philadelphia, 32 Pa. 75, 72 Am.Dec. 773; Johnson v. House, 131 Ark. 113, 198 S.W. 876.