Fuller v. . Lockhart

Clarkson, J. The many objections made by plaintiff to the contract made between the County Board of Education of Wake County, N. 0., and the three defendants, mutual fire insurance corporations, cannot be sustained. The County Board of Education of Wake County insured in these corporations a two-story brick building, known as Green Hope School, in White Oak Township in said county. The amount of insurance was $2,000, and for one year, from 1 April, 1935, to 1 April, 1936. The language of the policy applicable to the controversy: “In consideration of the stipulations herein named and of twelve and 35/100 dollars *66 premium do insure Board of Education of Wake County, . . . This policy is issued on á mutual basis for cash premium with a contingent liability in an amount as set forth in the by-laws of the respective companies on page three hereof, and by the acceptance of this policy the policyholder becomes a member of each of said companies, subject to the provisions of the by-laws thereof for all purposes. In determining the contingent liability of a policyholder in each company, the total premium of this policy shall be prorated among the companies in proportion to their several liabilities hereunder. . . . This corporation shall have no capital stock. Every person, corporation, partnership, or association named as the insured in a policy issued by the corporation shall be a member of the corporation while such policy is in force. . . . The board of directors shall, from time to time, determine which, if any, of the policies or classes of policies issued by the corporation shall be subject to a contingent mutual liability, and shall determine the maximum amount of such liability, which maximum amount shall in no case exceed a sum equal to the amount of one annual premium on the policy.” N. C. Code, 1935 (Michie), sec. 6274, gives the Insurance Commissioner authority over all insurance companies, and the same must be licensed and supervised by him. Section 6287 is as follows: “All contracts of insurance on property, lives, or interests in this State shall be deemed to be made therein; and all contracts of insurance the applications for which are taken within the State shall be deemed to have been made within this State and are subject to the laws thereof.” There is no question but that the defendant insurance companies have complied with the conditions of admission (section 6411) and have a right to do business in the State. The provisions of mutual insurance companies are found in Article 8, “Mutual Insurance Companies,” secs. 6346 to 6355, inclusive. Section 6348 provides, in part: “Every person insured by a mutual fire insurance company is a member while his policy is in force, entitled to one vote for each policy he holds. ... A person holding property in trust may insure it in such company, and as trustee assume the liability and be entitled to the rights of a member, but is not personally liable upon the contract of insurance,” etc. Section 6351 was amended by chapter 89, Public Laws of 1935, and is as follows: “The directors of a mutual fire insurance company may from time to time, by vote, fix and determine the amount to be paid as a dividend upon policies expiring during each year. Each policyholder is liable to pay his proportional share of any assessments which are made by the company in accordance with law and his contract on account of losses incurred while he was a member, if he is notified of such assessments within one year after the expiration of his policy. Any *67 mutual fire insurance company doing business with a fixed annual premium may in its by-laws and policies fix the contingent liability of its members for the payment of losses and expenses not provided for by its cash funds, which contingent liability must not be less than a sum equal to the cash premium written in his policy, and in addition thereto. The by-laws may also provide for policies to be issued for cash premiums without contingent liability of policyholders; provided, that no mutual fire insurance company shall issue any policy without contingent liability until and unless it possesses a surplus of at least one hundred thousand dollars. The total amount of the liability of the policyholder must be plainly and legibly stated upon the back of each policy. Whenever any reduction is made in the contingent liability of members, it applies proportionally to all policies in force. Provided, this section shall not apply to farmers mutual fire insurance companies.” We think the only material question presented on this record: Has the County Board of Education of Wake County a right to make the contract complained of by plaintiff? We think so. The plaintiff contends that it cannot “lend its credit to a private corporation contrary to the Constitution of the State.” It contends that it impinges the following sections of the Constitution of North Carolina: Art. Y, sec. 4, in part: “And the General Assembly shall have no power to give or lend the credit of the State in aid of any person, association, or corporation, except to aid in the completion of such railroads as may be unfinished at the time of the adoption of this Constitution, or in which the State has a direct pecuniary interest, unless the subject be submitted to a direct vote of the people of the State, and be approved by a majority of those who shall vote thereon.” Art. YU, sec. 7: “No county, city, town, or other municipal corporation shall contract any debt, pledge its faith, or lend its credit, nor shall any tax be levied or collected by any officer of the same except for the necessary expenses thereof, unless by a vote of a majority of the qualified voters therein.” We cannot agree with plaintiff’s contention. We think that the County Board of Education of Wake County did not lend its credit, but purchased the $2,000 of insurance from defendants for a year by paying them $12.35 and agreeing to pay them an amount on certain contingencies — the maximum not to exceed $12.35. It did not enter into private business, but purchased the insurance to protect its property. This was in the sound discretion of the board. “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 *68 incurred by such an insurance company, the municipality does not loan its credit to the company in violation of a constitutional prohibition against doing so. French v. Milville, 66 N. J. L., 392, 49 Atl., 465.” Colley’s Constitutional Limitations, Vol. 1 (8th Ed.), p. 469 — note. Affirmed 67 N. J. L., 349, 51 Atl., 1109. Downing v. School Dist. of Erie, 297 Pa., 474, 147 Atl., 239; Dalzell v. Bourbon Board of Education (1921), 193 Ky., 171, 235 S. W., 360. “There is an essential difference between stock and mutual insurance companies. A stock insurance company is a corporation with a capital stock, organized for the profit of its stockholders, who need not be policyholders. Its policies are issued solely upon the credit of its capital stock to persons who may be entire strangers to the corporation, who acquire by reason of their policies no right of membership and no right to participate in its profits, and who subject themselves to no liability by reason of its losses. In all these respects it differs materially from a mutual company, which has no stock or stockholders.” 32 C. J., 1020. Under the purchase of the insurance the board in no way became a stockholder or partner, nor did it incur any liability for debts. It is a mutual company, without stock or stockholders. Its policyholders are its only members. A stockholder is the owner or holder of shares in a corporation having a capital stock represented by shares. The policyholders can in no way become liable for the debts of the corporation. For the insurance purchased, it paid $12.35, and its contingent liability is limited to the maximum of the cash payment, in the present case to $12.35. The County Board of Education had full power and authority to make the contract and it was in its sound discretion. Section 6351, supra. The board is a corporation and an agency of the State. N. C. Code, 1935 (Michie), sec. 5419. Board v. Board, 192 N. C., 274; Hickory v. Catawba Co., 206 N. C., 165. The county of Wake and the County Board of Education of Wake County are administrative units in the public school system of the State. In Julian v. Ward, 198 N. C., 480 (482), it is said: “Under these (N. C. Const., Art. IX, secs. 1, 2, and 3) and other pertinent sections of the Constitution, it has been held in this jurisdiction that these provisions are mandatory. It is the duty of the State to provide a general and uniform State system of public schools of at least six months (now eight months — Public Laws 1935, ch. 455) in every year wherein tuition shall be free of charge to all the children of the State between the ages of six and twenty-one. It is a necessary expense and a vote of the people is not required to make effective these and other constitutional provisions in relation to the public school system of the State. Under the mandatory provision in relation to the public school system of the State, the financing of the public school system of the State is in the discretion of *69 the General Assembly by appropriate legislation either by State appropriation or through the county acting as an administrative agency of the State. Lacy v. Bank, 183 N. C., 373; Lovelace v. Pratt, 187 N. C., 686; Frazier v. Commissioners, 194 N. C., 49; Hall v. Commissioners of Duplin, 194 N. C., 768.” Elliott v. Board of Equalization, 203 N. C., 749. By the School Machinery Act of 1935, salaries, plant operation, and other major items of the current expense fund were transferred from the County Board of Education to the State Fund Administration, but maintenance expense and fixed charges, including insurance, are still left to the County Board of Education. Public Laws N. C., 1935, ch. 455, sec. 9 (pp. 760-761). The fixed charges indicated in N. C. Code, 1935 (Michie), sec. 5596 (a) 5, including insurance, are consequently “necessary expenses” of the County Board of Education, and the limitations of Art. VII, sec. 7, of the Constitution do not and cannot apply to the insurance of the regular public schools of the county which form a part of the State-wide system. The purchase of the insurance was for a public and not a private purpose, and a necessary expense. Ordinarily, the Board of Education has discretion in matters of this kind, and usually its action is not reviewable. In Newton v. School Committee, 158 N. C., 186 (188), citing a wealth of authorities, it is said: “Courts may not interfere with discretionary powers conferred on these local administrative boards for the public welfare, unless their action is so clearly unreasonable as to amount to an oppressive and manifest abuse of discretion.” Clark v. McQueen, 195 N. C., 714 (716); Crabtree v. Board of Education, 199 N. C., 645 (650). The plaintiff in his brief says: “The general law of this State is silent as to insuring property of schoolhouses in this State. Section 5419 incorporates the Board of Education and gives it general powers to pur-, chase and hold real and personal property, buildings, schoolhouses, etc. Section 5596 provides: ‘The May budget prepared by the County Board of Education shall provide for three separate school funds’; and subsection 5 of section (a) is as follows: ‘Fixed charges rent, insurance, and other necessary fixed charges.’ ” “Nowhere in the act creating the County Board of Education, or in any other legislative authority, has the County Board of Education been given the right to become a member and assume a contingent liability in a mutual fire insurance company.” We think plaintiff takes too narrow a view of section 6351, supra, and the subject. When the budget is set up by the County Board of Education, if it desires to purchase insurance in mutual companies like the defendants’, it can show the cash amount to do so and the contingent amount not *70 exceeding the cash premium. This matter is discretionary with the County Board of Education. The plaintiff cites section 6351, supra, and says: “We submit that the Legislature has carefully avoided granting to the County Board of Education or any other municipal corporation the authority to insure in mutual fire insurance companies. It has granted the right to trustees to become members of such mutual fire insurance companies, but it has declined to give its consent to a Board of Education or any other governmental agency to become a member of a mutual fire insurance company,” etc. We do not think this was necessary in specific language. Reading the section as a whole and giving it a liberal construction, it opens up the door to these mutual companies and says how they shall operate. The mutual companies are bound by the statute which is in force at the time of the execution of the contract and becomes part of the intention of the parties. Bateman v. Sterrett, 201 N. C., 59; Headen v. Ins. Co., 206 N. C., 270 (272). Section 6348 is an enabling statute to protect a trustee from liability. It has nothing to do with the rights asserted here by the County Board of Education, nor is the County Board of Education restricted from purchasing insurance in a mutual company; but section 6351 provides the terms and method of how mutual insurance can operate in this State. Those who purchase mutual insurance have their rights fixed. For the reasons given, the judgment of the court below is Affirmed. Devin, J., took no part in the consideration or decision of this case.