Credit Managers Ass'n of Southern California v. Kennesaw Life and Acc. Ins. Co.

Decision Date05 February 1987
Docket NumberNo. 85-6342,85-6342
Parties8 Employee Benefits Ca 1470 CREDIT MANAGERS ASSOCIATION OF SOUTHERN CALIFORNIA, State Court Receiver for Far West Administrators, Inc., the Compete Association, the Compete Master Trust and Fincomp Insurance Marketing, Inc., Plaintiff-Appellant, v. KENNESAW LIFE AND ACCIDENT INSURANCE COMPANY, a Georgia Corporation, Defendant- Appellee.
CourtU.S. Court of Appeals — Ninth Circuit

Kent Keller and Gail E. Cohen, Los Angeles, Cal., for plaintiff-appellant.

Douglas L. Hallett, Los Angeles, Cal., for defendant-appellee.

Appeal from the United States District Court for the Central District of California.

Before SNEED and SCHROEDER, Circuit Judges, and BROWNING *, District Judge.

SNEED, Circuit Judge:

Credit Managers Association (CMA), plaintiff-appellant, is the receiver for four entities that were involved in a program that provided medical care benefits to employees through their employers. Kennesaw Life and Accident Insurance Company (Kennesaw), defendant-appellee, contracted to provide some coverage in connection with these benefits. The precise nature of the coverage is subject to some dispute. CMA, in an effort to restore some measure of liquidity to the entities in receivership, sued Kennesaw on five theories: violation of California Insurance Code section 803, breach of fiduciary duty under the Employee Retirement Income Security Act (ERISA), breach of fiduciary duty under California law, unfair claims practices, and fraud. The district court granted summary judgment to Kennesaw on the first two claims and dismissed the other three claims because CMA did not have standing to assert them. We reverse on the ERISA count and affirm in all other respects.

I. FACTS AND PROCEEDINGS BELOW

The four entities of which CMA is the receiver are the Continental Organization of Medical, Professional and Technical Employees (COMPETE); the C.O.M.P.E.T.E. Master Trust a.k.a. Continental Organization of Medical, Professional and Technical Employees Trust (COMPETE Master Trust); Fincomp Insurance Marketing, Inc. (Fincomp); and Far West Administrators (Far West). COMPETE was an unincorporated association of employers that offered a variety of benefits to its members, including medical care benefits for their employees. Far West was a California corporation that administered the COMPETE medical care benefits program. Fincomp was a California corporation that marketed the COMPETE program. On or about February 21, 1981, COMPETE created the COMPETE Master Trust to fund the COMPETE program.

COMPETE operated in the following fashion. It issued certificates of insurance to covered employees that explained the medical care benefits provided. 1 Excerpt of Record (E.R.) item 1, at 479-504. Each covered employee had the choice of either seeking treatment from a member of Far West's Health Panel and paying nothing, or seeking treatment from a health care provider of his choice and paying twenty percent of the charges. There also were deductible amounts for certain treatments. The first alternative, the so-called "Health Maintenance Option," resembled a health care service plan subject to the Knox-Keene Health Care Service Plan Act of 1975 (Knox-Keene Act), Cal. Health & Safety Code Secs. 1340-1399.64. The second alternative, the so-called "Conventional Option," resembled a group insurance policy subject to the California Insurance Code. Kennesaw, however, may have had a third view. It alleges that at the time it did business with COMPETE, it thought the COMPETE Master Trust was a multiple employer trust, unregulated under California law.

The COMPETE Master Trust procured essentially two policies from Kennesaw. The first was Group Insurance Policy No. 600000001 (the 01 policy), which it was agreed would be retroactive to March 1, 1981. The policy covered only claims exceeding $25,000. Otherwise, it provided On March 12, 1982, two state agencies intervened. At the instance of the Insurance Commissioner, the Superior Court of California issued a temporary restraining order enjoining Far West, COMPETE, and Fincomp from transacting insurance business without a license. 1 E.R. item 4, exhibit B. On the same day, at the instance of the Commissioner of Corporations, the Superior Court appointed CMA as receiver for COMPETE, the COMPETE Master Trust, Fincomp, and Far West, because they were transacting health care service plan business without a license and were making misrepresentations. Id. at exhibits C and D. Thereafter CMA filed an adversary proceeding against Kennesaw in bankruptcy court, but the court abstained from jurisdiction, in part because COMPETE and the COMPETE Master Trust were probably insurers. Id. at exhibit E.

benefits substantially in accordance with the certificates issued by COMPETE. 1 E.R. item 1, at 153; cf. 3 E.R. item 14, at 36-39. The COMPETE Master Trust also procured Group Insurance Policy No. 600000002 (the 02 policy) from Kennesaw, effective July 1, 1981. Coverage under the 02 policy is essentially the same as under the 01 policy, but it is not restricted to claims exceeding $25,000. Kennesaw rolled over employers from the 01 policy to the 02 policy when and if it ascertained that they met Kennesaw's underwriting requirements. Kennesaw later issued Group Policy Nos. 6-0002-CA, -CO, and -ID, retroactive to July 1, 1981, to supersede the 02 policy. These policies will be referred to collectively as the 02 policy. According to Kennesaw, the 01 policy lapsed effective October 31, 1981, due to nonpayment of premiums.

CMA filed its complaint in district court on November 14, 1983. It sought to hold Kennesaw liable for all claims under the 01 policy, whether or not they exceeded $25,000. CMA also asked for punitive damages. Kennesaw has never repudiated the 02 policy, and it continues to pay claims under the 01 policy in accordance with its interpretation of its liabilities thereunder. Kennesaw contests only its liability under the 01 policy for claims less than $25,000. Such claims in the aggregate are very substantial.

II. STANDARD OF REVIEW

The district court granted summary judgment to Kennesaw on two claims and dismissed the remaining three claims for lack of standing. This court reviews an order granting summary judgment de novo. Gabrielson v. Montgomery Ward & Co., 785 F.2d 762, 764 (9th Cir.1986). It also reviews an order of dismissal for failure to state a claim de novo. Securities Investor Protection Corp. v. Vigman, 803 F.2d 1513, 1516 (9th Cir.1986).

III. STANDING
A. Was CMA properly appointed as receiver?

Kennesaw launches a two-pronged attack against CMA's standing as receiver. First it challenges CMA's authority to sue under the Insurance Code on the ground that the Insurance Commissioner alone may be appointed as receiver of an insolvent insurer. Kennesaw next questions whether any of the entities represented by CMA engaged in business as a health care service plan within the meaning of the Knox-Keene Act. Consequently, it contends that the Commissioner of Corporations did not have the authority to have CMA appointed as receiver for any purpose. The district court evidently accepted these arguments.

The Department of Insurance believes that CMA is a proper receiver for the entities it represents, and that the authority of the Insurance Commissioner to act as receiver of insolvent insurers is not exclusive. 3 E.R. item 20, at 102. We agree. It would be unnecessarily complicated to appoint two receivers, both the Insurance Commissioner and someone chosen by the Department of Corporations, when an entity acts both as an insurer and as a health Kennesaw's authority for asserting that only the Insurance Commissioner may be the receiver for an insolvent insurer is not strong. The Insurance Code, with its provision for the Insurance Commissioner serving as receiver, says that it "shall apply to all [insurers]." Cal.Ins.Code Sec. 1010. This language is mandatory, but not clearly exclusive. It does not address specifically a case like the instant one, in which the Insurance Commissioner acquiesces in the appointment of another receiver. Kennesaw refers to many cases in which the Insurance Commissioner, in fact, was appointed as receiver of an insolvent insurer. But only one case suggests that the Insurance Commissioner's receivership authority is exclusive, and the pertinent language in that case is dictum. Anderson v. Great Republic Life Ins. Co., 41 Cal.App.2d 181, 189, 106 P.2d 75, 80 (1940). Kennesaw urges this court to construe California law to conform to New York Law and the Uniform Insurers Liquidation Act, which appear to give the Insurance Commissioner exclusive authority to serve as receiver. We decline to do so.

care service plan. Furthermore, in some cases it might be unclear what type of entity is being placed in receivership. For example, Kennesaw claims to have been ignorant of the COMPETE Master Trust's true character at the time it did business with it. It would be wasteful to abort receivership proceedings in order to change receivers, solely because the courts had decided belatedly to characterize an entity in a different way.

Even if the Insurance Commissioner's authority to serve as receiver of an insolvent insurer is not exclusive, so that CMA is eligible to serve as receiver, the issue remains whether the Superior Court had the power to appoint CMA. The Superior Court purported to rely on the Knox-Keene Act, which authorizes the Commissioner of Corporations to sue for the appointment of a receiver "[i]n the case of any violation of the provisions of [the Knox-Keene Act]." Cal.Health & Safety Code Sec. 1392(a). Because the Knox-Keene Act applies only to "health care service plans," Cal.Health & Safety Code Sec. 1343(a), the propriety of CMA's appointment turns on whether the COMPETE program was a "health care service plan." Although the entities CMA represents acted in some...

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