Summary
In Lewallen, the insurance carrier collected premiums based on the monthly size of the total payroll of two businesses that were incorporated into one. Although the insurance policy listed only one of the pre-incorporated businesses and the policy was never changed to reflect incorporation, the supreme court held that the insurer was estopped to deny that the injured worker was an employee of the business that was insured based on the fact that the worker's salary was used to compute the premiums.
Summary of this case from Ala-Miss Enterprises, Inc. v. BeasleyOpinion
SC 863.
February 6, 1975.
Appeal from the Circuit Court, Jefferson County, William C. Barber, J.
Dunn, Porterfield, McDowell, Scholl Clark, Birmingham, for appellant.
A de facto corporation exists under color of law and in pursuance of an effort made in good faith to organize a corporation under the statute. It is an association of men claiming to be a legally incorporated company and exercising the powers and functions of a corporation but without actual lawful authority to do so. Black's Law Dictionary, 4th Edition, page 504 Citing: Foster v. Hare, 26 Tex.Civ.App. 177, 62 S.W. 541; Cedar Rapids Water Co. v. Cedar Rapids, 118 Iowa 234, 91 N.W. 1081; Tulane Irig. Dist. v. Shepard, 22 S.Ct. 531, 46 L.Ed. 773; Evens v. Anderson, 132 Minn. 59, 155 N.W. 1040. A person who deals with a corporation as such, both before and after articles of incorporation are actually filed, is estopped from denying the existence of the corporation even though said articles of incorporation have not been filed with the Probate Court. Bukacek v. Pell City Farms, Inc., et al., 286 Ala. 141, 237 So.2d 851. If a corporation is recognized as such by the parties, it will be regarded practically as a corporation and said parties are estopped from denying its existence. Bukacek v. Pell City Farms, Inc., et al., 286 Ala. 141, 237 So.2d 851.
Warren B. Lightfoot, Birmingham, for appellee William L. Hinds.
Louis A. Mezrano, Birmingham, for appellee John Huss.
Findings of trial court in ore tenus proceeding should not be disturbed unless clearly and palpably wrong. Baldwin v. Odum, 291 Ala. 129, 278 So.2d 713 (1973); Come v. Chancy, 289 Ala. 555, 269 So.2d 88 (1972); Murphree v. Henson, 289 Ala. 340, 267 So.2d 414 (1972); Norman v. Jefferson County, 288 Ala. 146, 258 So.2d 726 (1972). Where insurance carrier has knowledge of change in legal entity of insured employer and does not object thereto, carrier is liable under the policy. Nicholas v. Fitzgibbons Boiler Co., 30 A.D.2d 1013, 294 N.Y.S.2d 131 (1968); Moore v. Adams Electric Co., 264 N.C. 667, 142 S.E.2d 659 (1965); In re Hughes, 273 P.2d 450 (Okl. 1954); Engler v. Regent Bindery, Inc., 272 App. Div. 843, 69 N.Y.S.2d 887 (1947); Tri-State Cas. Ins. Co. v. Bowen, 189 Okl. 617, 113 P.2d 981 (1941); Federal Underwriters Exchange v. Coker, 116 S.W.2d 922 (Tex.Civ.App. 1938). Where carrier accepts payment of premiums from proposed insured, carrier cannot deny coverage. White v. Great American Ins. Co. of New York, 343 F. Supp. 1112 (M.D. Ala. 1972); Moore v. Adams Electric Co., 264 N.C. 667, 142 S.E.2d 659 (1965). Where carrier bases premium on payroll, business enterprise utilizing such payroll will be deemed covered. Douglas v. Sharp, 194 Tenn. 11, 249 S.W.2d 999 (1952); Moore v. Adams Electric Co., 264 N.C. 667, 142 S.E.2d 659 (1965). Verbal assurance by representative of carrier that coverage would be effected is sufficient to bind carrier. United States Fire Ins. Co. v. Hodges, 275 Ala. 243, 154 So.2d 3 (1963); State Farm Mutual Auto Ins. Co. v. Newell, 270 Ala. 550, 120 So.2d 390 (1960); Southern Guaranty Ins. Co. v. Rhodes, 46 Ala. App. 454, 243 So.2d 717 (1971); Hartford Fire Ins. Co. v. Shapiro, 270 Ala. 149, 117 So.2d 348 (1960); Oster v. Riley, 276 Minn. 274, 150 N.W.2d 43 (1967). Dome Contracting Company, Inc., was a de facto corporation despite failure to record in probate office, and incorporators-stockholders are not personally liable. Owensboro Wagon Co. v. Bliss, 132 Ala. 253, 31 So. 81 (1901); Central of Georgia Railway Co. v. Union Springs and Northern Railway Co., 144 Ala. 639, 39 So. 573 (1905); Cranson v. International Business Machines Corp., 234 Md. 477, 200 A.2d 33 (1964); Annotation, "Effect upon the corporate existence of failure to file certificate in organizing a corporation," 22 A.L.R. 376 (1923), Supplemented at 37 A.L.R. 1319 (1925). One who deals with a corporation as such is estopped to deny its existence. Bukacek v. Pell City Farms, Inc., 286 Ala. 141, 237 So.2d 851 (1970); Owensboro Wagon Co. v. Bliss, 132 Ala. 253, 31 So. 81 (1901); Magnolia Shingle Co., et al. v. Zimmern's Co., 3 Ala. App. 578, 58 So. 90 (1912). There is no corporation de facto where no attempt at all, even colorable, has been made to comply with a requirement of the statute made a condition precedent to corporate existence. H. J. Hughes Co. v. Farmers Union Produce Co., 110 Neb. 736, 194 N.W. 872; Marshall-Wells Co. v. Kramlick, 46 Idaho 335, 267 P. 611; Payne v. Bracken, 131 Tex. 394, 115 S.W.2d 903. The function of separate corporate existence was not intended to promote injustice or justify wrongs and when so used, it should be disregarded. Forest Hills Corporation v. Latter and Blum, 249 Ala. 23, 29 So.2d 298; Jefferson County Burial Society v. Cotton, 222 Ala. 578, 133 So. 256; Brown v. Standard Casket Mfg. Co., 234 Ala. 512, 175 So. 358. The notion of a separate corporate existence will not be recognized where a corporation is so organized and controlled and its business conducted in such a manner as to make it merely an instrumentality of another. Forest Hills Corporation v. Latter and Blum, 249 Ala. 23, 29 So.2d 298. It is the general rule that a person who has contracted, or otherwise dealt with an association, in such a way, as to recognize and in effect, admit its existence as a corporate body, is thereby estopped to deny its corporate existence in any action arising out of or involving such contract or dealings. 18 C.J.S. Corporations § 109, p. 504; Taylor v. Aldridge, 180 Miss. 635, 178 So. 331, 333.
This case involves the scope of coverage under a standard workmen's compensation and employer's liability policy. On June 21, 1972, the appellant, Employers Insurance Co., issued a policy to "Warren Lewallen d/b/a Omar Construction Company." At that time, Omar was involved in the construction of the Nob Hill Apartments in Birmingham. At the same time, Lewallen was operating another company involved in the construction of the Vestavia Knolls Apartments. The latter company was Dome Construction Company and it had been formed specifically for the Vestavia Knolls project. Lewallen was the sole proprietor of both companies and exercised all organizational and supervisory powers. All of the employees worked for Lewallen, but for the purposes of accounting, the two companies were kept separate. Dome employees were paid through Dome, and those working on the Nob Hill Apartments were paid through Omar.
In September, 1972, Lewallen decided to incorporate his entire construction business under the name of Dome Contracting Company, Inc. The appropriate papers were drafted and signed by the 29th of September, but the articles of incorporation were not filed in the office of the probate judge until October 25, 1972. At this time, Lewallen was not listed as an officer or director of the corporation. The stock was issued to the three incorporators, but all save for one share was immediately endorsed and delivered to Lewallen.
Appellee, John Huss, was first employed by Lewallen in 1971. He began working as a carpenter's assistant on the Nob Hill Apartment job, ostensibly as an employee of Omar. In July or August of 1972 Huss was transferred to the Vestavia Knolls site and received his pay through Dome. On October 12, 1972, Huss sustained an injury on the job which resulted in the loss of vision in one eye. Huss filed a workmen's compensation suit against the other appellees here. This suit was temporarily enjoined by an action for declaratory judgment brought by Employers. Employers denied any liability under their policy with Lewallen because of the fact Huss was not employed by Warren Lewallen d/b/a Omar Construction Co. when the injury occurred. This appeal followed a decree adverse to the insurance company rendered in the Circuit Court of the Tenth Judicial Circuit.
Employers argues that the crucial issue on this appeal is for whom was Huss working on the date of injury. If he was not then employed by Warren Lewallen d/b/a Omar Construction Co., the insurer contends that coverage was rightfully denied. It is pointed out that Huss was not working for Lewallen per se on the date of the injury, but for a de facto corporation or a partnership composed of Lewallen's attorney, accountant, and an employee of the accountant. This latter position seems untenable since there was never any intention on the part of these individuals to form a partnership. In any event, we do not find the question of whether or not Huss was then employed by a de facto corporation named Dome Contracting Co., Inc. to be dispositive of the case.
According to testimony before the trial court, Lewallen informed Employers on a few occasions that he intended to incorporate and wanted to do what was necessary to provide continuing coverage. On one occasion he was told by the underwriter that all would be taken care of. Ostensibly this meant that a simple endorsement on the policy would solve the difficulty, because that was all that was ultimately done on November 3, 1972. Thus, there was notice to the company of the impending change of form, and no objection was entered. Through this entire period, Employers charged and collected premiums from Lewallen, based on the monthly size of his total payroll. These premiums were calculated from the payroll of Omar as well as Dome, and at all times pertinent, the pay of John Huss was used to arrive at the final figure. Yet now, Employers would argue that during this time they only intended to cover Omar employees, while all the time collecting premiums based on the salaries of Dome's workers additionally. As late as one month before the accident, September 14, 1972, Employers accepted payment of a premium written on the account of Dome Construction Co. (not the corporation). At one point Lewallen was told that the Huss injury would be compensated, but later the company reversed itself on this and said they would not admit liability because Huss was not working for Omar.
There is a general rule of estoppel extant in the field of insurance law. This rule prohibits an insurer in employer's liability, who collects premiums based upon a payroll listing, from denying liability as to an employee who was included therein. See Couch on Insurance 2d, § 44:126 (1963 Ed.). In White v. Great American Insurance Co. of New York, 343 F. Supp. 1112 (M.D. Ala. 1972) a federal district court held that an insurance company which had collected premiums on policies associated with workmen's compensation and general liability of an employer was in ". . . no position to deny its liability on both aspects of its insurance." In Moore v. Adams Electric Company, 264 N.C. 667, 142 S.E.2d 659 (1965), an insurer tried to deny its liability because of a provision in the policy which stated that an assignment of the interest under the policy would not be binding on the company unless its endorsement appeared thereon. Mr. Adams sold his business to a corporate entity that he himself created. The North Carolina court concluded that this would not impose liability on the insurer for injuries sustained by the employees of the new corporation. However, the insurer had knowledge of the transfer and continued to charge and collect premiums from the corporation. This was considered as a waiver of any right to object to the assignment. The Oklahoma case of Young v. Holdenville, 384 P.2d 905 (Okl. 1963) was even more explicit on this issue. There it was held that a city's compensation carrier was estopped from denying liability for injuries suffered by the city treasurer, if her salary was in fact included in the calculation of the premium. The case was remanded for such a determination in light of the fact she was an elected official. The situation is best stated by a quotation from Black v. Swetnick, 281 App. Div. 997, 120 N.Y.S.2d 663 (1953):
"The carrier must be deemed to have intended to insure the enterprise upon whose payroll the premium was based."
There was a good deal of testimony in this case over what transpired during meetings and conversations between Lewallen, the insurance company, its agents, and others. The trial court heard all of this evidence orally and found that Employers fully intended to extend coverage to Warren Lewallen and each of his business entities, without regard to formality. We find ourselves unable to disagree with this conclusion. It is a long standing rule in this jurisdiction that where the evidence is heard orally, the trial court's decree is clothed with a presumption of correctness and it will not be disturbed unless we find it plainly erroneous or manifestly unjust. Morris v. Morris, 290 Ala. 41, 273 So.2d 203 (1973). In light of this, and the fact that Employers collected premiums based in part upon Huss' monthly compensation, we are bound to conclude that the insurance company is estopped from denying its liability in this case. Courts of law have traditionally done what has been referred to as "piercing the corporate veil." The circuit court's final decree uses this terminology. This case is somewhat different in that Employers is trying to shroud Lewallen with a corporate veil in an effort to escape its possible liability. However, all of its actions belie that result.
Affirmed.
HEFLIN, C. J., and BLOODWORTH, ALMON and EMBRY, JJ., concur.