INSURANCE -- SECOND CLASS SCHOOL DISTRICTS

INSURANCE -- SECOND CLASS SCHOOL DISTRICTS

A second class school district which has purchased an insurance policy from an automobile casualty company with premium definitely fixed and no provision for assessment, as a part of the same transaction may not make a contribution to a service corporation which is affiliated with the insurance company and where the making of such contribution is apparently required as a prerequisite to the obtaining of such insurance by the school district.

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                                                                 February 3, 1950

Honorable Mitchell Doumit
Prosecuting Attorney
Wahkiakum County
Cathlamet, Washington                                                                                                              Cite as:  AGO 49-51 No. 214

Dear Sir:

            We have your letter of January 27, 1950, in which you ask the following question:

            May a school district of the second class which has purchased an insurance policy from an automobile casualty company with premium definitely fixed and without any provision for assessments, also and as a part of the same transaction, make a contribution to a service corporation which is affiliated with the insurance company and where the making of such contribution is apparently made a prerequisite to the obtaining of such insurance by the school district.

            The conclusions reached may be summarized as follows:

            The school district may not make such a contribution.

                                                                     ANALYSIS

            You state in your letter that the local agent for the National Farmers Union Automobile and Casualty Insurance Company has written a policy for a school district of the second class in your county, such policy appearing to be in the usual form and without any provision for assessments.  You further state that the agent has also billed the district for a $10 contribution as provided by the company for eligibility for insurance.  Also, that the county auditor has questioned this $10 item and that you, as prosecuting attorney, have held that  [[Orig. Op. Page 2]] the district could not make contributions for such purpose in order to be eligible for insurance.  You have asked our opinion in the premises.

            The National Farmers Union Automobile and Casualty Company was not admitted to the State of Washington until April 19, 1949.  Previous to such admission considerable discussion as to their right of admittance was had between the company and the insurance commissioner.  The company was not admitted until certain changes were made in its charter or by-laws on April 1, 1949.  We understand that the company requires from every policy holder that he contribute the sum of $10 to the surplus account of the National Farmers Union Service Corporation.  Such payment of $10 is not a payment to the insurance company and is not a part of the premium.  It is an outright contribution and receipts are given for the same by the service corporation.  The $10 contribution will be used by the service corporation in furtherance of the Farmers Union program in ways calculated to be of general benefit.

            The above matter of the $10 payment was one of the subjects of difference between the insurance company and the Washington Insurance Department.

            Manifestly, the payment and receipt of the $10 item would have the effect of making the school district in question a creditor of the service corporation.  Such a payment would appear to be prohibited by section 7, Article VIII, of the Washington Constitution.  See alsoState ex rel. Washington Navigation Co. v. Pierce County, 184 Wash. 414, 51 P. (2d) 407.

            The transaction presents the following elements: The insurance company agrees to insure the school district's property and writes a policy complete in all respects, fixing the premium at an exact amount.  As a prerequisite, however, the school district purchasing such insurance is also required tocontribute $10 to a separate and distinct entity, namely, the service corporation.

            We cannot believe that the courts would enforce a provision for such contribution.  Whether the insurance company will write the policy in question or, if such policy is now in  [[Orig. Op. Page 3]] force, whether the insurance company will allow such policy to remain in force unless the contribution is made, are matters with which we have no concern.  Our objection, the same as your previous objection, relates not to the insurance policy but to the $10 contribution.  This we hold cannot be made by the school district.

Very truly yours,

SMITH TROY
Attorney General

GEORGE DOWNER
Assistant Attorney General