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(-- Tenn. 251 8. W. 96.)
STATE OF TENNESSEE EX REL. FRANK M. THOMPSON, Attorney
General, et al., Appts.,
Municipal corporations - power to effect group insurance for employees.
A city having power to increase the wages of its employees may take out group insurance for their benefit, if it will receive better service by so doing, without violating the constitutional provisions forbidding the appropriation of public funds for private purposes.
[See note on this question beginning on page 1267.]
APPEAL by plaintiffs from a decree of the Chancery Court for Shelby County (Heiskell, J.) in favor of defendants in an agreed case filed to determine whether or not they had the power to take out group insurance for the benefit of their employees. Affirmed.
The facts are stated in the opinion of the court.
Mr. Frank M. Thompson, Attorney purpose; the contract of insurance is, General, for the State:
therefore, valid. The issuance of the policy upon the Stratton Claimants v. Morris Claimlives of defendants' employees was a ants (Dibrell v. Lanier) 89 Tenn. 497, private use, or purpose, for which the 12 L.R.A. 70, 15 S. W. 87; Nichol v. premiums upon said policy the city Nashville, 9 Humph. 268; Memphis v. could not pay out of public funds. Memphis Water Co. 5 Heisk. 528.
Louisville & N. R. Co. v. County Ct. The carrying of group insurance 1 Sneed, 637, 62 Am. Dec. 424; McCal. has a direct relation to the well-being lie v. Chattanooga, 3 Head, 321; of the citizens of the city of Memphis Adams v. Memphis & L. R. R. Co. 2 and the operation of its water departColdw. 645; East Tennessee Uni- ment. versity v. Knoxville, 6 Baxt. 168; Shel- Nichol v. Nashville, 9 Humph. 268; by County v. Tennessee Centennial Ex- East Tennessee University v. Knoxposition Co. 96 Tenn. 655, 33 L.R.A. ville, 6 Baxt. 166; Shelby County v. 717, 36 S. W. 694; Ballentine v. Pulas. Tennessee Centennial Exposition Co. ki, 15 Lea, 633; Ransom v. Rutherford 96 Tenn. 653, 33 L.R.A. 717, 36 S. W. County, 123 Tenn. 1, 130 S. W. 1057, 694; Ransom v. Rutherford County, Ann. Cas. 1912B, 1356; Hill v. Rob- 123 Tenn. 1, 130 S. W. 1057, Ann. Cas. erts, 142 Tenn. 215, 217 S. W. 826; 1912B, 1356; Hill v. Roberts, 142 Nichol v. Nashville, 9 Humph. 252; Tenn. 215, 217 S. W. 826; Ryan v. Ryan v. Louisville & N. Terminal Co. Louisville & N. Terminal Co. 102 102 Tenr. 111, 45 L.R.A. 303, 50 S. Tenn. 111, 45 L.R.A. 303, 50 S. W. 744. W. 744; People ex rel. Terbush & Expenditures of public funds, monPowell v. Dibble, 189 N. Y. Supp. 29, ey appropriated for group insurance, 196 App. Div. 913, 186 N. Y. Supp. and similar purposes are proper. 951, 231 N. Y. 593, 132 N. E. 901.
Nohl v. Board of Education, 27 N. Mr. S. O. Bates also for the State. M. 232, 16 A.L.R. 1085, 199 Pac. 373;
Messrs. Charles N. Burch, H. D. Bowers v. Albuquerque, 27 N. M. 291, Minor, C. H. McKay, Walter P. Arm- 200 Pac. 421; State ex rel. Kane v. strong, Wilson, Gates, & Armstrong, Johnson, Mo. 25 S. W. 855; and John L. Exby, for appellees:
Somers v. State, 5 S. D. 584, 59 N. W. The appropriation of money by the 962; Gibbs V. Morgan, 39 N. J. Eq. city for the carrying of group insur- 126; McQuillin, Mun. Corp. § 2169; ance on employees of the city water Com. ex rel. Philadelphia Police Pendepartment is for a corporate and sion Fund Asso. v. Walton, 182 Pa. public purpose, and not for a private 373, 61 Am. St. Rep. 712, 38 Atl. 790.
McKinney, J., delivered the opin- and existing in pursuance of said act ion of the court:
and the acts amendatory thereof; F. This cause was heard upon the G. Proutt, T. F. Stratton, and Milton following agreement, to wit:
J. Anderson composing the board of “This is an agreed case filed in the water commissioners of the city of chancery court of Shelby county, Memphis, F. G. Proutt being the Tennessee, under and pursuant to $8 chairman of said board, said three 3450 to 3454 (both inclusive) of the parties last mentioned having been Code of Tennessee.
duly appointed members of said "It is agreed by the parties here- board by the board of commissionto, as follows:
ers of the city of Memphis. “Frank M. Thompson is the attor- "The city of Memphis is the ownney general of the state of Tennes- er of a large and extensive watersee, and is charged generally with works and water supply system, the enforcement of the laws of the having acquired said system by virstate and the prosecution and pre- tue of authority conferred by chapvention of violations of the laws of ter 32 of the Acts of 1899, and ownthe state. His personal residence ing said waterworks and water supis in the county of Hamilton, and ply system in fee simple. The city his official residence is in the city of employs a large number of persons Nashville, county of Davidson. in said water department. The wa
“Samuel O. Bates is the district ter department of the city furnishes attorney general for Shelby county, water to all residents of the city and his personal and official resi- who desire to purchase water from dence is in the city of Memphis, the city, whether for domestic, Shelby county, Tennessee.
manufacturing, or other purposes, “Will A. Hall is a citizen and resi- and the water department also furdent of the city of Memphis, Shel- nishes a large quantity of water for by county, Tennessee, and is a regu- the fire, street, police, and other delar purchaser and consumer of partments of the city of Memphis. water furnished by the city of Some residents of the city, however, Memphis to residents of the city have sunk their own artesian wells and said Will A. Hall pays regularly on their own property, and do not each month for water so furnished purchase water from the city water to him by the city of Memphis. department, but use water from
"This suit is brought by the state their own water supply. of Tennessee on relation of said “The Equitable Life Assurance Frank M. Thompson, attorney gen Society is a mutual life insurance eral, and on relation of said Sam- company incorporated and organuel O. Bates, district attorney gen- ized under the laws of the state of eral, and on relation of said Will A. New York, and licensed and auHall as a resident taxpayer of Mem- thorized to transact business in Tenphis, Tennessee, and a regular pur- nessee, and having an office and a chaser of water from the city of general agent in Memphis, TennesMemphis, and also by said Will A. Hall in his own personal capacity as "Bank of Commerce & Trust a citizen and resident of Memphis, Company is a banking corporation Tennessee, and a regular purchaser and trust company organized under of water in the city of Memphis, the laws of the state of Tennessee Tennessee,-suing for the benefit of with its place of business in Memhimself and all other taxpayers of phis, Tennessee. the city of Memphis and purchaserg "Defendant Minnie Wilton is the of water from the city of Memphis. widow of John Wilton, deceased,
“The defendants to this suit are and defendants Emeline L. Allen the city of Memphis, a municipal and Minnie A. Born are daughters corporation, created by chapter 11 of said John Wilton, deceased, and of the Acts of 1879, and organized said defendants are the beneficia
(-- Tenn. , 251 8. W. 16.) ries, in equal shares, survivors or took under consideration the carrysurvivor, under the certificate of in- ing of group insurance on the lives surance issued by the Equitable Life of certain of its employees, and, aftAssurance Society to the said John er careful investigation of the matWilton, hereinafter mentioned, and ter, by resolutions duly passed on are the parties now claiming the December 29, 1920, and January 5, right to recover the proceeds of said 1921, contracted with the Equitable insurance, arising from the death of Life Assurance Society for the said John Wilton, as hereinafter set carrying of group insurance on the forth; all are residents of Shelby lives of certain of its employees. county, Tennessee.
Copies of said resolution are here“Group insurance is a modern de- to attached and made a part herevelopment in the life insurance field. of as exhibits 1 and 2. It may be carried by any employer "Thereupon the Equitable Life who has regularly in his employ fifty Assurance Society issued a policy employees or more. It may cover covering the employees of the water all of the employees of the employer, department who are to be insured, or all employees of any one or more and a copy of said policy is hereto classes in his employ. It applies to attached as exhibit 3, and made part all employees, without regard to age, hereof; said policy became effective sex, race, or occupation. It is pur- January 1, 1921. chased cheaper per capita than the “In addition to the policy just reindividual employees can purchase ferred to, there was issued to each individual insurance. No medical employee embraced in said group inexamination of employees covered is surance, a certificate showing his inrequired. Experience shows that terest in said group insurance. A 20 per cent of the average run of copy of the certificate issued to John employees cannot obtain life insur- Wilton, an old and valued employee ance at standard rates, because of of the water department, is hereto physical defects. In case of death attached as exhibit 4, and made part the benefits are payable to the em- hereof. Said certificate is typical of ployee's beneficiaries, named by him, certificates issued to other employ. as in other insurance. In case of ees. The number of employees covtotal disability, the benefits are pay- ered by said group insurance is 101. able to the employee. The benefits The water department paid in adincrease annually, according to the vance to said insurance society an length of service of the individual estimated premium of $1,771.55 for employee, until the benefits, in this the first year's insurance under said case, reach $2,000 in the sixth year policy (and later $72.40, being the as to office help and heads of de- balance of said premium), covering partments, and $1,000 in the sixth the calendar year 1921, and has also year as to laborers. The insurer paid a second estimated premium in furnishes health bulletins and con- advance, $1,923.96, covering the sultant advice on matters pertaining calendar year 1922. The water comto health and general welfare of em- missioners were induced to incur the ployees, and likewise makes surveys expense of the group insurance just of plants, checks up safety appli- referred to for the following reaances, gives consultant advice on sons: The water commissioners bematters pertaining to employment lieved that, in order to retain skilled problems, and renders other assist- employees in its service, and in orance in matters pertaining to the der at all times to be able to furnish efficiency of employees, reduction in water in any quantity to the resilabor turnover, and similar prob- dents of the city, it was necessary to lems.
give its employees some considera“During the latter part of the tion in addition to the regular wages year 1920, the board of water com- and salaries of such employees; it is missioners of the city of Memphis customary for banks, manufacturing corporations, and other large "The amount paid annually for corporations in the city of Memphis group insurance by said water deto carry group insurance for the partment increases to that extent benefit of employees, and the water the operating expenses of said water commissioners believe that, unless department, and said additional ex
, the water department could likewise pense is borne and met by such adtake care of its employees, such em- dition to water rates as may be necployees would not remain long in essary to pay said additional insurits service, but would go into the ance expense. service of others, whereby they felt "The said Will A. Hall and all that their families and dependents other water consumers of the city of would be taken care of, to some Memphis, of whom there are many extent, in the event of death of thousands, are interested in the opsuch employees, and they themselves erating expenses of the water de. would be provided for in the event partment, and any addition to opthey should become disabled.
erating expenses adds an additional “The water commissioners also burden to all water consumers for found that, by carrying group insur- the purchase of water from the city ance, the employees of the water de- of Memphis. During the calendar partment remained in the service of year 1921, the total operating exthe water department, and did not penses of the water department leave to go into the employ of others, amounted to $355,918.32. and were satisfied; and they further “At the time of the contracting found that better and more satisfac- for said insurance, both the city of tory service was rendered by em- Memphis (including its board of ployees when group insurance was water commissioners) and the Equicarried than when no insurance was table Life Assurance Society were married. The water commissioners, of the opinion that said contract of
ontracting for said group insur- insurance was valid, and that said 2nce, were influenced solely by a de- contract as made was within the sire to give the best possible serv- powers of said water commissioners ice to the public, and to be at all of the city of Memphis. times able and ready to furnish that “During the year 1921, the attormost vital necessity to all communi- ney general of Tennessee rendered ties, to wit, an unlimited supply of an opinion to the insurance compure, wholesome water.
missioner of the state of Tennessee, “While the compensation of all in which
which the attorney general employees of the water department reached the conclusion that the embraced in said group insurance carrying of group insurance by a is for a specific amount of money, municipal corporation for the beneyet said insurance is treated and fit of the employees of such corporaunderstood by the employees of the tion was ultra vires and beyond the water department and by the board powers of a municipal corporation of water commissioners as part of in Tennessee, and amounted to an the compensation of said employees. unlawful diversion of public funds
“All the expenses of the water de- to private uses, and complainants partment are borne by receipts ob- herein are of the same opinion and tained from the sale of water, and make the same contention in this the rates at which water is sold are cause. The city of Memphis and its fixed at such amounts as will yield water commissioners and the Equisufficient revenue to pay all operat- table Life Assurance Society are ing expenses of the water depart- nevertheless still of the opinion that ment, all repairs of said waterworks said contract of insurance is legal system, and to pay all fixed charges and entirely within the lawful powand interest on outstanding bonds, ers of the board of water commisand to provide a sinking fund for sioners, but at the same time said the payment of such bonds.
parties do not desire to violate the
(- Tenn. —, 251 8. W. 46.) law, but, on the other hand, to strict- funds above mentioned, and such ly obey the law, and therefore, in other funds as may be paid to it pursuance of a trust agreement, under said trust agreement, and will copy of which is hereto attached and dispose of said funds in accordance made exhibit 5, there has been paid with the determination of this case, into the hands of the Bank of Com- when so advised by said city of merce & Trust Company, trustee, a Memphis and said Equitable Life total of $6,055.57, composed of the Assurance Society. items set out below, and said ac- “This is a real and substantial count as it appears upon the books controversy and not a moot quesof said trustee is as follows:
tion, and the parties hereto are
vitally interested in its determina"1922.
tion, and, in addition, it may be March 2. Ck. from Memphis Artesian Water
added that the question is one of inDept. balance due Equi
terest to all other municipalities in table Life Assurance
the state of Tennessee, several of Society for group insur
which are carrying similar group infor year 1921,
surance for the benefit of city em$72.40, and estimated
ployees. premium for year 1922,
i "Upon the above statement of $1,923.96
$1,996.36 March 23. Ck. from Mem.
facts the parties hereto submit to
the court for determination of the phis Artesian Water Dept., being check of
question as to whether the city of Equitable Life Assur
Memphis, acting through its said ance Society, for return
water commissioners, can lawfully of unearned premium
contract and pay for group insurreceived from Water
ance upon its employees, as above Dept.
stated, or whether such action on March 25. Ck. from Equi. table Life Assurance
the part of said water commissionSociety covering death
ers is ultra vires and amounts to an benefit accruing
unlawful diversion of public moneys to beneficiaries of John
to private uses. Wilton
2,000.00 “In the event the court should April 18. Ck. from Equi
decree that said contract of insurtable Life Assurance
ance is an ultra vires act on the part Society, for dividend
of said water commissioners, then due Jan. 1, 1922, on
the parties complainant herein ask policy No. 5,910,937
that the court decree that the city of June 6. Balance cash on hand
Memphis and the board of water
commissioners of the city of Mem$6,055.57 $6,055.57 phis be enjoined from further car
rying out said contract of insurance, “Other payments will probably be
and that the said contract of insurmade to said trustee under the
ance be declared void ab initio, and terms of said trust agreement. that the Bank of Commerce & Trust
“The beneficiaries of John Wilton, Company, as trustee, pay to the city to wit, Minnie Wilton, Emeline L.
the premiums of insurance now in Allen, and Minnie A. Born, are the
its custody, as said trustee, and that widow and daughters respectively of
said Bank of Commerce & Trust said John Wilton above mentioned Company pay to the Equitable Life and are parties hereto, and as such Assurance Society any sums paid by beneficiaries are claiming the $2,- the Equitable Life Assurance So000 above mentioned as accruing to ciety to said trustee by reason of the them under the policy of insurance death or injury of any employee covherein involved.
ered by said insurance. “The said Bank of Commerce & "On the other hand, in the event Trust Company, as trustee, holds the the court holds that the contract of