STATE OF TENNESSEE EX REL. FRANK M. THOMPSON, Attorney General, et al., Appts., V. CITY OF MEMPHIS et al. Tennessee Supreme Court — May 12, 1923. Tenn. —, 251 S. W. 46.) 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 General, for the State: The issuance of the policy upon the lives of defendants' employees was a private use, or purpose, for which the premiums upon said policy the city could not pay out of public funds. Louisville & N. R. Co. v. County Ct. 1 Sneed, 637, 62 Am. Dec. 424; McCallie v. Chattanooga, 3 Head, 321; Adams v. Memphis & L. R. R. Co. 2 Coldw. 645; East Tennessee University v. Knoxville, 6 Baxt. 168; Shelby County v. Tennessee Centennial Exposition Co. 96 Tenn. 655, 33 L.R.A. 717, 36 S. W. 694; Ballentine v. Pulaski, 15 Lea, 633; Ransom v. Rutherford County, 123 Tenn. 1, 130 S. W. 1057, Ann. Cas. 1912B, 1356; Hill v. Roberts, 142 Tenn. 215, 217 S. W. 826; Nichol v. Nashville, 9 Humph. 252; Ryan v. Louisville & N. Terminal Co. 102 Tenr. 111, 45 L.R.A. 303, 50 S. W. 744; People ex rel. Terbush & Powell v. Dibble, 189 N. Y. Supp. 29, 196 App. Div. 913, 186 N. Y. Supp. 951, 231 N. Y. 593, 132 N. E. 901. Mr. S. O. Bates also for the State. Messrs. Charles N. Burch, H. D. Minor, C. H. McKay, Walter P. Armstrong, Wilson, Gates, & Armstrong, and John L. Exby, for appellees: The appropriation of money by the city for the carrying of group insurance on employees of the city water department is for a corporate and public purpose, and not for a private purpose; the contract of insurance is, therefore, valid. Stratton Claimants v. Morris Claimants (Dibrell v. Lanier) 89 Tenn. 497, 12 L.R.A. 70, 15 S. W. 87; Nichol v. Nashville, 9 Humph. 268; Memphis v. Memphis Water Co. 5 Heisk. 528. The carrying of group insurance has a direct relation to the well-being of the citizens of the city of Memphis and the operation of its water department. Nichol v. Nashville, 9 Humph. 268; East Tennessee University v. Knoxville, 6 Baxt. 166; Shelby County v. Tennessee Centennial Exposition Co. 96 Tenn. 653, 33 L.R.A. 717, 36 S. W. 694; Ransom v. Rutherford County, 123 Tenn. 1, 130 S. W. 1057, Ann. Cas. 1912B, 1356; Hill v. Roberts, 142 Tenn. 215, 217 S. W. 826; Ryan v. Louisville & N. Terminal Co. 102 Tenn. 111, 45 L.R.A. 303, 50 S. W. 744. Expenditures of public funds, money appropriated for group insurance, and similar purposes are proper. Nohl v. Board of Education, 27 N. M. 232, 16 A.L.R. 1085, 199 Pac. 373; Bowers v. Albuquerque, 27 N. M. 291, 200 Pac. 421; State ex rel. Kane v. Johnson, Mo., 25 S. W. 855; Somers v. State, 5 S. D. 584, 59 N. W. 962; Gibbs v. Morgan, 39 N. J. Eq. 126; McQuillin, Mun. Corp. § 2169; Com. ex rel. Philadelphia Police Pension Fund Asso. v. Walton, 182 Pa. 373, 61 Am. St. Rep. 712, 38 Atl. 790. McKinney, J., delivered the opinion of the court: This cause was heard upon the following agreement, to wit: "This is an agreed case filed in the chancery court of Shelby county, Tennessee, under and pursuant to §§ 3450 to 3454 (both inclusive) of the Code of Tennessee. "It is agreed by the parties hereto, as follows: "Frank M. Thompson is the attorney general of the state of Tennessee, and is charged generally with the enforcement of the laws of the state and the prosecution and prevention of violations of the laws of the state. His personal residence is in the county of Hamilton, and his official residence is in the city of Nashville, county of Davidson. "Samuel O. Bates is the district attorney general for Shelby county, and his personal and official residence is in the city of Memphis, Shelby county, Tennessee. "Will A. Hall is a citizen and resident of the city of Memphis, Shelby county, Tennessee, and is a regular purchaser and consumer water furnished by the city of Memphis to residents of the city, and said Will A. Hall pays regularly each month for water so furnished to him by the city of Memphis. "This suit is brought by the state of Tennessee on relation of said Frank M. Thompson, attorney general, and on relation of said Samuel O. Bates, district attorney general, and on relation of said Will A. Hall as a resident taxpayer of Memphis, Tennessee, and a regular purchaser of water from the city of Memphis, and also by said Will A. Hall in his own personal capacity as a citizen and resident of Memphis, Tennessee, and a regular purchaser of water in the city of Memphis, Tennessee,-suing for the benefit of himself and all other taxpayers of the city of Memphis and purchasers of water from the city of Memphis. "The defendants to this suit are the city of Memphis, a municipal corporation, created by chapter 11 of the Acts of 1879, and organized and existing in pursuance of said act and the acts amendatory thereof; F. G. Proutt, T. F. Stratton, and Milton J. Anderson composing the board of water commissioners of the city of Memphis, F. G. Proutt being the chairman of said board, said three parties last mentioned having been duly appointed members of said board by the board of commissioners of the city of Memphis. "The city of Memphis is the owner of a large and extensive waterworks and water supply system, having acquired said system by virtue of authority conferred by chapter 32 of the Acts of 1899, and owning said waterworks and water supply system in fee simple. The city employs a large number of persons in said water department. The water department of the city furnishes water to all residents of the city who desire to purchase water from the city, whether for domestic, manufacturing, or other purposes, and the water department also furnishes a large quantity of water for the fire, street, police, and other departments of the city of Memphis. Some residents of the city, however, have sunk their own artesian wells on their own property, and do not purchase water from the city water department, but use water from their own water supply. "The Equitable Life Assurance Society is a mutual life insurance company incorporated and organized under the laws of the state of New York, and licensed and authorized to transact business in Tennessee, and having an office and a general agent in Memphis, Tennes see. "Bank of Commerce & Trust Company is a banking corporation and trust company organized under the laws of the state of Tennessee with its place of business in Memphis, Tennessee. "Defendant Minnie Wilton is the widow of John Wilton, deceased, and defendants Emeline L. Allen and Minnie A. Born are daughters of said John Wilton, deceased, and said defendants are the beneficia ries, in equal shares, survivors or survivor, under the certificate of insurance issued by the Equitable Life Assurance Society to the said John Wilton, hereinafter mentioned, and are the parties now claiming the right to recover the proceeds of said insurance, arising from the death of said John Wilton, as hereinafter set forth; all are residents of Shelby county, Tennessee. (- Tenn. — "Group insurance is a modern development in the life insurance field. It may be carried by any employer who has regularly in his employ fifty employees or more. It may cover all of the employees of the employer, or all employees of any one or more classes in his employ. It applies to all employees, without regard to age, sex, race, or occupation. It is purchased cheaper per capita than the individual employees can purchase individual insurance. No medical examination of employees covered is required. Experience shows that 20 per cent of the average run of employees cannot obtain life insurance at standard rates, because of physical defects. In case of death the benefits are payable to the employee's beneficiaries, named by him, as in other insurance. In case of total disability, the benefits are payable to the employee. The benefits increase annually, according to the length of service of the individual employee, until the benefits, in this case, reach $2,000 in the sixth year as to office help and heads of departments, and $1,000 in the sixth year as to laborers. The insurer furnishes health bulletins and consultant advice on matters pertaining to health and general welfare of employees, and likewise makes surveys of plants, checks up safety appliances, gives consultant advice on matters pertaining to employment problems, and renders other assistance in matters pertaining to the efficiency of employees, reduction in labor turnover, and similar problems. "During the latter part of the year 1920, the board of water commissioners of the city of Memphis "Thereupon the Equitable Life Assurance Society issued a policy covering the employees of the water department who are to be insured, and a copy of said policy is hereto attached as exhibit 3, and made part hereof; said policy became effective January 1, 1921. A "In addition to the policy just referred to, there was issued to each employee embraced in said group insurance, a certificate showing his interest in said group insurance. copy of the certificate issued to John Wilton, an old and valued employee of the water department, is hereto attached as exhibit 4, and made part hereof. Said certificate is typical of certificates issued to other employees. The number of employees covered by said group insurance is 101. The water department paid in advance to said insurance society an estimated premium of $1,771.55 for the first year's insurance under said policy (and later $72.40, being the balance of said premium), covering the calendar year 1921, and has also paid a second estimated premium in advance, $1,923.96, covering the calendar year 1922. The water commissioners were induced to incur the expense of the group insurance just referred to for the following reasons: The water commissioners believed that, in order to retain skilled employees in its service, and in order at all times to be able to furnish water in any quantity to the residents of the city, it was necessary to give its employees some consideration in addition to the regular wages and salaries of such employees; it is customary for banks, manufactur ing corporations, and other large corporations in the city of Memphis to carry group insurance for the benefit of employees, and the water commissioners believe that, unless the water department could likewise take care of its employees, such employees would not remain long in its service, but would go into the service of others, whereby they felt that their families and dependents would be taken care of, to some extent, in the event of death of such employees, and they themselves would be provided for in the event they should become disabled. "The water commissioners also found that, by carrying group insurance, the employees of the water department remained in the service of the water department, and did not leave to go into the employ of others, and were satisfied; and they further found that better and more satisfactory service was rendered by employees when group insurance was carried than when no insurance was carried. The water commissioners, ontracting for said group insurance, were influenced solely by a desire to give the best possible service to the public, and to be at all times able and ready to furnish that most vital necessity to all communities, to wit, an unlimited supply of pure, wholesome water. "While the compensation of all employees of the water department embraced in said group insurance is for a specific amount of money, yet said insurance is treated and understood by the employees of the water department and by the board of water commissioners as part of the compensation of said employees. "All the expenses of the water department are borne by receipts obtained from the sale of water, and the rates at which water is sold are fixed at such amounts as will yield sufficient revenue to pay all operating expenses of the water department, all repairs of said waterworks system, and to pay all fixed charges and interest on outstanding bonds, and to provide a sinking fund for the payment of such bonds. "The amount paid annually for group insurance by said water department increases to that extent the operating expenses of said water department, and said additional expense is borne and met by such addition to water rates as may be necessary to pay said additional insurance expense. "The said Will A. Hall and all other water consumers of the city of Memphis, of whom there are many thousands, are interested in the operating expenses of the water department, and any addition to operating expenses adds an additional burden to all water consumers for the purchase of water from the city of Memphis. During the calendar year 1921, the total operating expenses of the water department amounted to $355,918.32. "At the time of the contracting for said insurance, both the city of Memphis (including its board of water commissioners) and the Equitable Life Assurance Society were of the opinion that said contract of insurance was valid, and that said contract as made was within the powers of said water commissioners of the city of Memphis. "During the year 1921, the attorney general of Tennessee rendered an opinion to the insurance commissioner of the state of Tennessee, in in which the attorney general reached the conclusion that the carrying of group insurance by a municipal corporation for the benefit of the employees of such corporation was ultra vires and beyond the powers of a municipal corporation in Tennessee, and amounted to an unlawful diversion of public funds to private uses, and complainants herein are of the same opinion and make the same contention in this cause. The city of Memphis and its water commissioners and the Equitable Life Assurance Society are nevertheless still of the opinion that said contract of insurance is legal and entirely within the lawful powers of the board of water commissioners, but at the same time said parties do not desire to violate the (Tenn. - law, but, on the other hand, to strict- "1922. March 2. Ck. from Memphis Artesian Water Dept. balance due Equitable Life Assurance Society for group insurance for year 1921, $72.40, and estimated premium for year 1922, $1,923.96 March 23. Ck. from Memphis Artesian Water Dept., being check of Equitable Life Assurance Society, for return of unearned premium received from Water Dept. March 25. Ck. from Equi table Life Assurance Society covering death accruing to benefit beneficiaries of John Wilton April 18. Ck. from Equi table Life Assurance Society, for dividend due Jan. 1, 1922, on policy No. 5,910,937 June 6. Balance cash on hand Debits. Credits. $6,055.57 $1,996.36 1,771.55 2,000.00 287.66 $6,055.57 $6,055.57 "Other payments will probably be made to said trustee under the terms of said trust agreement. "The beneficiaries of John Wilton, to wit, Minnie Wilton, Emeline L. Allen, and Minnie A. Born, are the widow and daughters respectively of said John Wilton above mentioned, and are parties hereto, and as such beneficiaries are claiming the $2,000 above mentioned as accruing to them under the policy of insurance herein involved. "The said Bank of Commerce & Trust Company, as trustee, holds the funds above mentioned, and such other funds as may be paid to it under said trust agreement, and will dispose of said funds in accordance with the determination of this case, when so advised by said city of Memphis and said Equitable Life Assurance Society. "This is a real and substantial controversy and not a moot question, and the parties hereto are vitally interested in its determination, and, in addition, it may be added that the question is one of interest to all other municipalities in the state of Tennessee, several of which are carrying similar group insurance for the benefit of city employees. "Upon the above statement of facts the parties hereto submit to the court for determination of the question as to whether the city of Memphis, acting through its said water commissioners, can lawfully contract and pay for group insurance upon its employees, as above stated, or whether such action on the part of said water commissioners is ultra vires and amounts to an unlawful diversion of public moneys to private uses. "In the event the court should decree that said contract of insurance is an ultra vires act on the part of said water commissioners, then the parties complainant herein ask that the court decree that the city of Memphis and the board of water commissioners of the city of Memphis be enjoined from further carrying out said contract of insurance, and that the said contract of insurance be declared void ab initio, and that the Bank of Commerce & Trust Company, as trustee, pay to the city the premiums of insurance now in its custody, as said trustee, and that said Bank of Commerce & Trust Company pay to the Equitable Life Assurance Society any sums paid by the Equitable Life Assurance Society to said trustee by reason of the death or injury of any employee covered by said insurance. "On the other hand, in the event the court holds that the contract of |