Miller v. Johnson

This is an action by a taxpayer to enjoin the defendants from paying an insurance premium from county funds. The defendant.trustees, of Ripon Union High School District in 1933 took out a policy of fire insurance on school buildings in the principal sum of $21,000, with the defendant Farmers Mutual Protective Fire Insurance Company of San Joaquin County, a mutual fire insurance company organized under the County Fire Insurance Company Act. (Stats. 1897, p. 439, as amended; Deering’s Gen. Laws, 1931, Act 3729; Deering’s 1933 Supp., p. 1720.) The complaint attacks this action as illegal. Defendants filed demurrers, which were sustained without leave to amend, and plaintiff appealed. The question presented is whether a school district may in California insure school property in a mutual fire insurance company organized under our laws.

A mutual fire insurance company, under the above statute, may be organized by any number of persons not less than twenty-five, residing in any county and owning insurable property therein worth at least $50,000. Thereafter any person owning insurable property in the county or an adjoining county may become a member by insuring therein. Every member binds himself to pay his share of losses sustained by any other member. Where the policy is over $6,000, the company must reinsure the excess amount with some other company, except where it has a certain large volume of insurance on its. books, in which case the limit is progressively increased. When a loss exceeds cash on hand, the directors assess property of members in proportion to premiums. By amendment in 1933, assessments were limited to five times the amount of the premium, and this limitation clause is made a part of the standard policy.

" The first contention of appellant is that a school dis- • trict is not a “person” within the meaning of the County Mutual Fire Insurance Act, and for this reason cannot be a member of a mutual insurance company. It is neither necessary nor desirable to review the numerous decisions which have held, under particular circumstances, that a statute re

Appellant, however, contends that section 6.2 of the School Code is unconstitutional in purporting to authorize a political subdivision to become a stockholder in an insurance corporation, and to lend its credit to a corporation, in violation of article IV, section 31, and article XII, section 13, of the California Constitution. We cannot agree with this view. The mutual fire insurance company issues no stock, and the position of a member is not analogous to that of a stockholder in an ordinary private corporation. As to the pledging of credit, this precise question has received the attention of a few courts, and an important distinction has been recognized. If the statute or policy subjects the political subdivision to a possible unlimited assessment to meet losses, it is objectionable under such constitutional provisions. (School Dist. No. 8 v. Twin Falls County Mutual Fire Ins. Co., 30 Idaho, 400 [ 164 Pac. 1174 ].) But where the assessments are limited, as here, to some such sum as five times the original premium, there is no pledging of credit by the political subdivision. It is simply an arrangement where there is a maximum contingent liability by way of premium, but only one-fifth thereof need ordinarily be paid, and the balance is never collected unless some extraordinary losses occur. The lending of credit, if any, is by the insurance company to the public body; and neither the letter nor the spirit of the Constitution is violated

The judgment is affirmed.

Curtis, J., Preston, J., Waste, C. J., Shenk, J., Seawell, J., and Thompson, J., concurred.

Rehearing denied.