Washington Agency, Inc. v. Commissioner of Insurance

16 N.W.2d 121, 309 Mich. 683

• Court: Michigan Supreme Court
• Decided: October 11, 1944
• Docket: Calendar No. 42,587.
• Status: Published

Opinions

Reid, J.

This petition is brought for mandam'us to require the commissioner of insurance to continue the license of plaintiff to write insurance as an agency. Plaintiff is a Michigan corporation, incorporated December 9, 1940, with powers under its charter to conduct the business of an insurance agency. License was applied for and issued December 26, 1940, and has been renewed each year since.

A complaint was filed with the commissioner. He sent plaintiff notice of a hearing which was held in his office October 13,1943, at the conclusion of which the license was revoked. At the hearing testimony was introduced on the relationship between plaintiff and the Industrial National Bank—Detroit, a Fed-' eral corporation.

“Licenses for agents shall be issued only to persons who are actual residents of this State, or to corporations of this State.” 3 Comp. Laws 1929, § 12339, as amended by Act No. 163, Pub. Acts 1931 (Comp. Laws Supp. 1940, § 12339, Stat. Ann. 1943 Rev. §24.133).

Plaintiff, proceeding on the theory that the revocation was on the ground that the same persons held all the shares of the capital stock of the two corporations, claimed that consequently the ruling was discriminatory and a deprivation in violation of section 1 of the Fourteenth Amendment to the Federal Constitution. Defendant admits that his action could not have been well taken on so narrow a ground. He evidently was led by that state of affairs to scrutinize the affairs of plaintiff more closely.

The issue on this appeal is whether plaintiff’s activities are controlled by the bank and whether the bank by indirection and subterfuge obtained this license in the name of plaintiff to evade the State statute and the Federal statute (12 USCA, § 92) which permits a national bank to act as insurance agent only when located in places of less than 5,000 population.

The policy of government respecting such matters as intimate relationships between banks and insurance agencies is for the most part set forth in legislation and executive actions. Congress views with none too great favor a national bank acting as insurance agent, forbidding it in places of 5,000 or more population.

Mr. Bramble, the commissioner’s investigator, in his report, made March 27,1942, found:

“The patent fact that all business of the Washington Agency, Inc., originates in the Industrial National Bank—Detroit, and with clients of the bank, particularly with applicants for loans secured by personal property, presents implications subject to interpretation that the close relationship of the agency and the bank is not conducive to practices desired by this department.”

It appears that the bank and plaintiff were organized at the same time.

Plaintiff sets forth that the Industrial National Bank—Detroit succeeded the Industrial Morris Plan Bank which practically from the .beginning of its business in 1917 had found it necessary to render assistance to borrowers in obtaining insurance, and claims that requiring such insurance is common practice among lenders of money, individual and corporate; also that by correspondence when the Industrial National Bank—Detroit was organized, the comptroller of the currency treated the Washington Agency, Inc., as an affiliate of the bank, that is, that their relationship consisted only in the fact that their stockholders were the same persons.

When plaintiff was organized, the original capital was paid in December 9, 1940, by Mr. Bowen, who was the sole stockholder,* at the first meeting after incorporation, December 17, 1940, Messrs. Lewis, Turnbull, Bopp, Bugg, McLean, Taub and Bowen were elected directors, all of whom except Bowen were officers and directors of the bank. The only shares of stock that were ever issued were the shares to Mr. Bowen, which shares in turn were later issued to the four trustees, Messrs. Lewis, Turnbull, Bopp and Bugg, who were principal officers of the bank.

Their declaration of trust dated January 20,1941,' stated that they held the legal title to the shares for the use and benefit of the stockholders of the bank but trustees had the right to vote and exercise all acts of ownership of the stock of plaintiff. A majority of the directors of the bank could at will remove any or all of the trustees. The shareholders of the Washington Agency, Inc., received their dividends along with their bank’s dividends, all in one check. Plaintiff showed that the Washington Agency, Inc., wrote the insurance in an average of about 40 per cent, of the bank’s loans in the last three years.

Not until after a preceding hearing. before the commissioner of insurance was provision made for the issuing of any certificates to the shareholders of plaintiff corporation. Later and apparently on October 26, 1943, the shareholders were notified of a change in the terms of the trust whereby each had the right to get his certificate on request. The same notice said, “I.t is believed that'it is more convenient and better for all concerned that the shares be left with the trustees.” No stockholder asked for his certificate.

There was competent testimony to indicate that plaintiff is organized under a plan by which the executive officers of the bank have entire control over plaintiff’s operations for the financial benefit of the same persons who are the bank’s stockholders.

The commissioner found:

“The Washington Agency, Inc., was organized to circumvent 3 Comp. Laws 1929, § 12339, as amended, by indirection and subterfuge, by obtaining an insurance agency license for the benefit of the Industrial National Bank, which is prohibited by such law; and it further appearing that there was sufficient cause shown that the said Washington Agency, Inc., is not a ‘proper and fit’ corporation to be permitted to transact business as an insurance agent in this State contrary to 3 Comp. Laws 1929, § 12344, as amended [by Act No. 163, Pub. Acts 1931 (Comp. Laws Supp. 1940, § 12344, Stat. Ann. 1943 Rev. § 24.138)] and’ 12 USCA, § 92, because of its inevitable control by and identity with the said Industrial National Bank; and1 it further appearing that the said 'license is employed contrary to public policy;

“It is ordered that the insurance agent’s license of the Washington Agency, Inc., be and the same is hereby revoked.”

Courts will not interfere with the act of a public administrative officer acting fairly within the scope of his authority. The testimony, taken as a whole, furnished a basis for defendant’s finding. The petition must be dismissed, with costs to defendant.

North, C. J., and Starr, Wiest, Bushnell, Sharpe, and Boyles, JJ., concurred with Reid, J.