Chez, Atty. Gen. v. Industrial Comm. of Utah ( 1936 )

This is an application to prohibit the Industrial Commission from accepting from the town of Scipio the sum of $7,200 in consideration of the surrender and cancellation of seven of said town's $1,000 bonds together with matured interest of $517.40. One bond, due June 1, 1934, and another due June 1, 1935, are in default. The other five bonds had not matured when this writ was sued out. The petition alleges that the present value of all the bonds is $7,200. The action is really to procure an interpretation of section 27, art. 6, of our State Constitution, which reads as follows:

"The Legislature shall have no power to release or extinguish, in whole or in part, the indebtedness, liability or obligation of any corporation or person to the State, or to any municipal corporation therein."

It was rather presumed that the decision in this case would be of guidance to all officers, boards, departments, and commissions as to their right to compromise or take less than the amount owing on or amount paid for bonds held by such officer, board, department, and commission. As will be seen by what is set out hereunder, this decision rests on its special facts and can form no such general rule of guidance.

We do not believe section 27, art. 6, applies to the facts of this case, because an indebtedness to the "State Insurance Fund" is not an indebtedness to the state or any municipality thereof as meant by said section 27. It must be kept in mind throughout the ensuing discussion that the 1 question is not whether the State Insurance Fund is a "public fund" in the sense that it is publicly administered, but whether a debt or obligation owing to it is an obligation or liability to the state as meant by section 27, art. 6. We shall examine the nature of the State Insurance Fund and see what it really is. Section 42-2-1, R.S. 1933, reenacting the original section contained in the 1917 laws, sets up the State Insurance Fund. It states:

"There shall be maintained a fund * * * for the purpose ofinsuring employers against liability for the compensation, andof assuring to the persons entitled thereto the compensation,provided by this title. Such fund shall consist [1] of allpremiums and penalties received and paid into the fund, [2] of property and securities acquired by and through the use of moneys belonging to the fund, and [3] of interest earned upon money belonging to the fund and deposited or invested as herein provided." (Italics supplied.)

It will be noted that the basic source of the fund is the premiums and penalties — nothing else. Originally the state contributed $40,000 to start the fund, but this was to initiate it, and as a contribution towards its establishment — a benevolence. True, if the state has not been paid back on liquidation it would probably have a claim for its advancement. But such advancement in no wise changed the nature of the fund, i.e., one derived from premiums and penalties payable byemployers. And what is it expended for? It is paid on accountof the employer for compensation for which he is primarily liable. See American Fuel Co. of Utah v. Industrial Comm.,55 Utah 483, 187 P. 633, 8 A.L.R. 1342. The employer really pools his premiums in the State Fund to create a fund for the payment of an obligation for which it is liable. It is a common fund belonging to the participating employers. It is therefore not derived from anything owing to the state nor paid out on behalf of any state obligation. The coming into the fund is voluntary. If employers band together and form their own fund with a management selected by them, which fund would pay their compensation liability, there would be no question as to the nature of the fund. It would not then even be public moneys in the sense that it was in custody of and managed by a public body or held by a public official. Change the situation somewhat. The Legislature provides for workmen's compensation, a social and a public purpose. The end it desired to accomplish was to see that workmen incapacitated by industrial accidents or their dependents in case of an industrial death were paid something to live on. Not so much to accomplish this end as to assure its accomplishment, the Legislature required the compensation risk to be insured. It provided in cases of financially able employers for self-insurance. Those not obtaining the privilege of self-insurance could either insure in a private carrier or in a fund which the Legislature provided for, consisting of employers' contributions or premiums. Forty thousand dollars was given to start it off, and premiums are paid into it by the state for its own employees like any private employer. But basically it is no different than if the state and a number of private employers agreed to establish their own fund. It was made easier by setting up a skeleton fund to begin with, giving the Industrial Commission the administration of it and providing by law for rules and regulations to govern it. That reached more quickly and more easily the same result as a mutual company would have reached. It served to give employers, who were forced to insure, a means to get the insurance practically for the cost of the compensation without charges for profits or acquisition and in addition gave it a public aspect and made its administration and management subject to public audit, inspection, and responsibility. But it did not change the essential nature of the venture. It was a venture by the state as an employer and certain private employers who choose to come in, in which they pooled their premiums to create a fund for the purpose of paying, not a state obligation or making expenditures on behalf of the state, but of paying their own contingent compensation liabilities. Any indebtedness or obligation to such a fund, whether for premium payments, or principal or interest on securities invested in, is not an indebtedness or obligation or liability to the state as meant by section 27, art. 6, of our Constitution. Should the state at some time establish a means whereby counties, cities, school districts, etc., could pay bond premiums into a fund and obtain faithful performance bonds from the body required by law to administer the fund, the state itself bonding its officers therein, and should make any profits payable to those contributing to the fund and should start it off by an advancement of $40,000, it would not be contended that such fund operated by the state purely for the benefit of the participants made an indebtedness to the fund an indebtedness to the state.

This theory is amply borne out by other sections of the Code. The cost of the audit is paid out of the fund, not by the state or out of an appropriation. Section 42-2-2. "There shall be no liability on the part of the state beyond the amount of such fund." Section 42-2-1. Thus, the state in effect says: "We will create, establish, manage, collect and administer through the Industrial Commission but as an agent and trustee only for the contributing employers." The commission may reinsure risks. Section 42-2-9. By section 42-2-10, subsecs. (3) and (4), balances earned and not needed as reserves are turned where? Not to the state, but back to the contributing employers. If the Legislature decided to discontinue the State Fund, upon liquidation anything not needed to pay contingencies would be returned to the contributing employers. The fund is publicly administered, but its debtors are not debtors to the state. It belongs, not to the state, but to the contributing employers for their mutual benefit. It constitutes a pooling of risks under the auspices of the state. See 71 C.J. 900, § 628; State ex rel.Stearns v. Olson, 43 N.D. 619, 175 N.W. 714; State v.Padgett, 54 N.D. 211, 209 N.W. 388; Industrial Commission of Colorado v. Stong, 77 Colo. 590, 239 P. 12. Section 3096, Comp. Laws Utah 1917, provided that the commission was vested with full authority over said fund, and may do all things necessary or convenient in the administration thereof, or in connection with the insurance business to be carried on by it under the provisions of that title. This section recognized it as an "insurance business." It is an insurance business for the benefit and accommodation of the contributing employers. It provides a means for meeting an obligation placed on them by the Legislature which at the same time is useful in holding down the charges of the private stock companies. The Legislature gave the commission "full authority" over the fund.

Owing to the fact that we have concluded that the State Insurance Fund, while a public fund in the sense of being administered by a public body, is not public money in the sense that it is money of the state to be used for and on behalf of the state for a state expenditure, and therefore money owing to it is not an obligation to the state as meant by section 27, art. 6, of the Constitution, it is unnecessary for us in this opinion to discuss or decide the question of whether section 27, art. 6, is a prohibition only against the Legislature as such or whether it extends to administrative or executive bodies or commissions created by the Legislature. Nor is it necessary for us to decide whether debts owing to the State Land Board, or other departments, commissions, or boards, may be compromised by such bodies. Cases involving the right to compromise by such bodies will have to be decided on their facts when and as they arise.

We have decided the question presented in this case without determining whether there was not by injunction a speedy and adequate remedy at law. Having now decided the legal question presented, we are compelled nevertheless to make the writ permanent because the Industrial Commission is 2 without authority to sell the bonds without the approval of the Board of Examiners. The Chief Justice has called our attention to section 42-2-14, R.S. 1933, reading as follows:

"The commission may invest any of the surplus or reserve belonging to the state insurance fund in bonds of the United States or federal land banks, of this state, or of any county, city, town or school district of this state, at current market prices for such bonds; or in first mortgages on real estate at not to exceed forty per cent of the cash value thereof; provided, that such purchase or investment is authorized by a resolution adopted by the commission and approved by the state board of examiners. * * * The state treasurer shall honor and pay all vouchers drawn on the state insurance fund for the purchase of such bonds when signed by any two members of the commission upon delivery of said bonds to him when there is attached to such voucher a certified copy of such approved resolution of the commission authorizing the purchase of such bonds; and the commission may sell any of such bonds upon like resolution, and the proceeds thereof shall be paid by the purchaser to the state treasurer."

The words "like resolution," in the last three lines of this section, we think, refer to "approved resolution."

Since it does not appear that the Industrial Commission has obtained the approval of the Board of Examiners to the proposed sale, the writ must be made permanent. Such is the order.

ELIAS HANSEN, C.J., and FOLLAND, J., concur.