GROVES v. CITY OF LOS ANGELES et al.*
Defendants appeal from a judgment permanently enjoining them from enforcing & 21.80 of the Los Angeles Municipal Code which imposes an occupational tax on bail bondsmen. The case was before us upon an appeal by plaintiff from a judgment after demurrer sustained without leave to amend. 93 Cal.App.2d 17, 208 P.2d 254. In our former opinion the allegations of the complaint and the pertinent constitutional and legislative enactments were fully stated. The injunction issued after trial on the theory that the Municipal Code section was in violation of Art. XIII, § 14 4/545 of the Constitution which provides that the state tax on insurance companies, based upon all income from business done in this state (with certain exceptions) ‘* * * is in lieu of all other taxes and licenses, state, county, and municipal, upon such insurers and their property * * *.’ The trial court was guided by the decision in Hughes v. Los Angeles, 168 Cal. 764, 145 P. 94, which held that a city license tax imposed upon insurance company agents was a tax on the right of the companies to do business in the state and was barred by the above constitutional provision.
The question presented by this appeal is whether a license tax levied upon bail bondsmen and measured by their gross receipts less the amount paid by them to the insurance companies they represent, is a tax on the insurance companies.
Plaintiff Groves is a bail agent employed by the Associated Bond & Insurance Agency. Associated has an agreement with the National Automobile Casualty & Insurance Company providing for sale of bail bonds by National Auto to the Associated at an agreed percent of face value for the purpose of resale to the public. The agreement between National Auto and Associated also provides for the deposit of collateral by Associated and that Associated is to indemnify National Auto in the event a loss or forfeiture occurs. Plaintiff's agreement with Associated provides for the deposit with Associated of a fixed amount in addition to the price of the bond with each purchase of a bond which sum is to be held by Associated to protect itself against losses, and the agreement further provides that plaintiff shall indemnify Associated for any and all losses. Plaintiff was allowed to sell the bonds for any price he desired less than a maximum of ten percent of the face amount of the bond. When a bond is issued plaintiff pays 1.6 percent of the face amount of the bond to Associated which, in turn, remits .5 percent to National Auto. In addition, plaintiff pays to Associated for a reserve fund 1 percent of the face amount of each bond sold. The remainder of the bond fee charged is retained by plaintiff. Plaintiff was licensed as a bail agent by the State Insurance Commissioner.
The city says that in issuing a bond the plaintiff acts in a ‘bifurcated capacity,’ and that as to the portion of each charge for a bond that is due the insurance company he is its agent, and that as to the remainder he is in an ‘independent business.’ The license tax, it is said, is upon this independent business and not against the company, within the meaning of the constitutional limitation. The substance of the argument appears to be that the excess of the charge to the customer above the amount due the company is for the service of the agent, based largely upon his responsibility for losses, and that the transaction in this respect is no part of the business of the company. The argument ignores the fact that the methods of representation of the insurer in the issuance of bonds are mere incidents in the carrying on of the company's business, which are appropriate, if not necessary to a successful operation.
Section 1800 of the Insurance Code provides: ‘An insurer shall not execute an undertaking of bail except by and through a person holding a bail license * * *. A person shall not in this State solicit or negotiate in respect to execution or delivery of an undertaking of bail or bail bond by an insurer, or execute or deliver such an undertaking of bail or bail bond unless licensed * * *.’ Section 1802 of the Insurance Code provides: ‘A bail agent's license by its terms permits the licensee to solicit, negotiate, and effect undertakings of bail on behalf of the insurer therein designated while there is in effect an unrevoked document filed pursuant to subdivision (b). Such license shall not be issued unless and until there is filed with the commissioner: (a) A document executed by the insurer, stating that upon the issue of the license the licensee therein named is authorized to execute undertakings of bail in the county therein designated, and to solicit, and negotiate such undertakings on its behalf, until it files with the commissioner a notice of revocation of the agent's authority. (b) A bond having an admitted surety insurer as surety thereon in the penal sum of $1,000, conditioned upon the proper application and disposal of all moneys collected or received by the bail agent, his solicitors licensed pursuant to his appointment, and his employees, in favor of the people of the State of California.’
Due to the peculiar and hazardous nature of the bail bond business the practice has grown up of requiring general agents and subagents to guarantee the undertakings of the insured, fortified by the deposit of collateral. The liability on the bond is that of the insurer. It is all an integral part of the business of the company and the nature of it is not altered by calling the issuance of a bond a sale to the agent or subagent or by saying that the agent is an independent contractor in his dealings with his customer. The city ordinance purports to exact a license from the agent, as such. It is immaterial that the agent and not the company is required to pay the tax or that it is not based in part upon the sums that are payable to the company by the agent.
We think the court correctly applied the reasoning and conclusions of the court in Hughes v. Los Angeles, 168 Cal. 764, 765, 145 P. 94, 95, where it is said: ‘The distinction sought to be drawn in this case is that this particular license fee is not imposed upon the companies but upon the agents of the companies. This is true, but upon the other hand it is equally true that every insurance corporation must act through agents and can act only through agents, and that, therefore, in a direct and immediate sense a tax upon such agents for the right to do business is a tax upon the corporation's right to do business. The agents of corporations are the means whereby the corporations live and in opposition to a tax upon their agents the corporations may well be heard to voice Shylock's expostulation: ‘You take my house when you do take the prop That doth sustain my house; you take my life When you do take the means whereby I live.’ * * * It follows, therefore, that the imposition of this occupation tax upon the agents of insurance corporations does violation to article 13, section 14, of the Constitution of this state, and may not be enforced.'
It is asserted in the opening brief of the city that the court made a finding that the total amount collected by the agent from his customer constitutes the premium charged by the company, and that if this were true the license tax would be invalid. It is then argued at length that this was an incorrect finding. As a consequence of this argument an amicus brief has been filed by the Insurance Commissioner in which he refutes the argument of the city. Another brief has been filed on behalf of several insurance companies in reply to the contentions of the Insurance Commissioner, wherein it is stated that the questions discussed by the city and the Insurance Commissioner are in issue in other pending cases.
The fact is that the court made no such finding. It appears from plaintiffs' brief that the court stated in a memorandum decision that it considered the entire amounts collected from the customers to be premiums charged by the company, but that in a conference prior to the signing of findings the court held that the question was not in issue. This statement in plaintiffs' brief is not questioned. The theory advanced by the Insurance Commissioner is foreign to the issues tried and determined in the court below. The question as to what constitutes premiums or income to the insurer is not before us and is irrelevant to the point we have decided, namely, that the tax, although not upon tangible property of the insurer, is upon its right to do business, and that the ordinance, in that respect, and the tax are void.
The judgment is affirmed.
SHINN, Presiding Justice.
PARKER WOOD and VALLÉE, JJ., concur.