Academy Life Ins. Co. v. Odiorne

• Decision Date: 21 August 1990
• Docket Number: CA-CV,No. 1,1
• Citation: 165 Ariz. 188,797 P.2d 727
• Parties: ACADEMY LIFE INSURANCE COMPANY, Claimant-Appellant, v. James T. ODIORNE, Permanent Receiver for United Bankers Life Insurance Company-Appellee, Roy E. Gill, Permanent Receiver for Lincoln Life Insurance Company-Appellee. 88-460.
• Court: Arizona Court of Appeals

Page 727

797 P.2d 727

165 Ariz. 188

ACADEMY LIFE INSURANCE COMPANY, Claimant-Appellant, v. James T. ODIORNE, Permanent Receiver for United Bankers Life Insurance Company-Appellee Roy E. Gill, Permanent Receiver for Lincoln Life Insurance Company-Appellee.

No. 1 CA-CV 88-460.

Court of Appeals of Arizona Division 1, Department C.

Aug. 21, 1990.

[165 Ariz. 189] Mohr, Hackett, Pederson, Blakley, Randolph & Haga, P.C. by John R. Hoopes, Phoenix, for claimant-appellant.

Mangum, Wall, Stoops & Warden by Daniel J. Stoops, Flagstaff, for appellee Odiorne.

OPINION

FIDEL, Judge.

In receivership proceedings for a defunct insurer, one claimant contested the validity of a claim brought by another. The receiver allowed the disputed claim, and the superior court approved. The opposing claimant now appeals.

We reverse. We find the evidence insufficient to establish the validity or invalidity of the disputed claim. En route to this conclusion, we discuss the nature of receivership proceedings and hold as follows:

1. A receivership claimant has standing to challenge the validity of a rival claim by raising defenses ordinarily personal to the debtor, such as the statute of limitations, if the receiver has not already raised them.

2. A.R.S. § 20-640, which requires claimants to file claims within four months from the granting of an order of liquidation, does not constitute a statute of limitations; timely presentation to the receiver under that statute does not revive a claim that is otherwise time barred.

3. A claim arising in another state that remains valid and unextinguished in its state of origin may be asserted in an Arizona receivership even if the Arizona statute of limitations would bar its assertion as an original proceeding in an Arizona court.

In addition to resolving these issues, we examine and interpret a portion of a Texas statute, article 3.10 of the Texas Insurance Annotated Code, that has not yet been interpreted by the Texas courts.

PROCEDURAL AND FACTUAL BACKGROUND

After placing Lincoln Life Insurance Company ("Lincoln Life") into conservatorship, the director of Arizona's Department of Insurance commenced delinquency proceedings in the Superior Court of Arizona and secured the appointment of a receiver. In response to petitions filed by the receiver, the court later ordered the liquidation of Lincoln Life's assets and established a procedure for Lincoln Life's creditors to file claims. On January 20, 1987, the court entered an order giving creditors four months to file claims.

Among the claimants seeking recovery were Academy Life Insurance Company ("Academy Life") and James T. Odiorne, permanent receiver of United Bankers Life Insurance Company ("United Bankers"). Both claims arose from reinsurance agreements. The origin and validity of Academy Life's claim are not at issue.

United Bankers, itself in receivership, was an insurer organized under Texas Law. United Bankers' claim stemmed from a reinsurance agreement that United Bankers and Lincoln Life executed in Texas in 1979. The agreement provided that Lincoln Life would reinsure 100 percent of United Bankers' liability on certain policy forms to be attached from time to time as exhibits to the agreement. Exhibit 1 to the agreement listed seven policy forms to be covered, and a later addendum listed two more.

A Texas statute prohibited a domestic company from reinsuring "its entire outstanding business" unless the assuming insurer was licensed in Texas and the agreement was approved by the Texas Commissioner of Insurance. Lincoln Life was organized under Arizona law and was not licensed to do business in Texas. The reinsurance agreement between United Bankers and Lincoln Life was not approved by the Texas Commissioner of Insurance.

After executing the reinsurance agreement, the parties evidently disputed how it was to operate. Neither party completed annual reports to properly reflect the existence of the agreement. However, Kenneth Hobbs, a former vice president and comptroller of United Bankers, testified that United Bankers viewed the agreement as enforceable and took steps to try to resolve the disagreement over its operation. He eventually sent a letter to Lincoln Life's president outlining a settlement proposal, but United Bankers later notified Lincoln Life that it was cancelling the agreement.

In September 1982, a conservatorship for United Bankers took effect, followed shortly by a receivership proceeding. On April 12, 1983, United Bankers' receiver filed suit against Lincoln Life in a Texas district court to recover commissions, premiums, and administrative fees allegedly owed under the reinsurance agreement. The record is silent concerning the progress of that suit.

United Bankers filed its proof of claim in this receivership on April 27, 1987, within the four-month time limit set by the Maricopa County Superior Court. Although the proof of claim did not refer to a judgment or award against Lincoln Life, it included a copy of the Texas complaint, alleging approximately $1,726,599 in damages under the reinsurance agreement. Also attached to the proof of claim were later calculations prepared by Hobbs amending the damage claim to $1,919,586.

On June 18, 1987, the receiver recommended that the court pay various creditor claims including Academy Life's $1,000,000 claim and United Bankers' $1,919,586 claim. Academy Life opposed the recommendation to pay United Bankers' claim; the assets in receivership totalled a mere $110,000, and United Bankers' claim would significantly diminish Academy Life's pro rata share. Following discovery, briefing, and argument by both United Bankers and Academy Life, the court approved the recommendations of the receiver, including payment of United Bankers' claim.

Academy Life appeals, arguing that the receiver should have disallowed United Bankers' claim for either of two reasons: (1) the applicable Arizona statute of limitations bars enforcement of the reinsurance agreement in the receivership proceedings; (2) the reinsurance agreement is illegal and unenforceable in Texas, the source of applicable law, because Lincoln Life was not licensed to do business in Texas and the agreement was not approved by that state's Commissioner of Insurance. United Bankers disputes the merits of these arguments and also attacks Academy Life's standing to assert them.

STATUTE OF LIMITATIONS

1. Academy Life's Standing to Assert Defense

The defense of the statute of limitations is a personal privilege that a debtor or one in privity may elect to urge or waive. Trujillo v. Trujillo, 75 Ariz. 146, 148, 252 P.2d 1071, 1072 (1953). Because this defense is personal, most jurisdictions hold that a general creditor ¹ may not plead the statute of limitations on its debtor's behalf. Fehn v. Schlickling, 26 Tenn.App. 608, 614, 175 S.W.2d 37, 39 (1943); 54 C.J.S. Limitations of Actions § 15 (1987); Annotation, Right of Creditor to Set Up Statute of Limitations Against Other Creditors of His Debtor, 71 A.L.R.2d 1049, 1051-54 (1960). As with most general rules, however, there are exceptions.

Some courts, for example, observe an exception for lien or judgment creditors. E.g., Schriber v. Alameda County-East Bay Title Ins. Co., 156 Cal.App.2d 700, 320 [165 Ariz. 191] P.2d 82 (1958); Rosevele Frocks, Inc. v. Sommers, 191 Misc. 614, 78 N.Y.S.2d 41 (N.Y.App.Term 1948); see generally, Right of Creditor supra at 1054-1061. We need not determine Arizona's position on this exception because Academy Life does not purport to be other than a general creditor.

A more closely related exception has been recognized when the debtor has died and the estate is in probate. The West Virginia Supreme Court of Appeals permitted a creditor to raise the defense in this setting because "it was then impossible for the debtor to plead the statute of limitations; his voice was hushed." Welton v. Boggs, 45 W.Va. 620, 32 S.E. 232, 233 (1898).

For similar reasons, courts often have recognized an exception where the debtor is insolvent and has lost the right to direct the affairs of the estate. See McCartney v. Potomac Electric Co., 94 Va. 198, 203, 26 S.E. 419, 421 (1896); Robertson v. Wade, 17 Tenn.App. 457, 68 S.W.2d 487, 492 (1933). As the Supreme Court of Georgia stated in Pendley v. Powers:

Where an insolvent estate has been placed in the hands of a receiver for administration and distribution, each creditor is interested to see that only existing claims against the deceased share in the distribution. The administrator ... cannot be allowed to favor one creditor and prejudice another by pleading the statute of limitations as to some claims and not as to others, and denying to the interested creditors the right to make the defense, on the ground that it is a personal privilege.

129 Ga. 69, 58 S.E. 653, 654 (1907).

We have found no Arizona cases on this issue. The Arizona Supreme Court has stated, however, that a receiver must consider the respective rights as between claimants. Sisk v. White, 50 Ariz. 103, 106, 69 P.2d 242, 244 (1937). A.R.S. § 20-628(D) gives interested parties the right to object to claims the receiver recommends for payment. We believe that it comports with Sisk and § 20-628(D) to hold, as the cited jurisdictions have held, that claimants have standing to assert the statute of limitations defense in receivership proceedings where the receiver has neglected to do so.

2. A.R.S. § 20-640 Establishes An Administrative Claims Procedure, Not a Statute of Limitations

Having concluded that Academy Life has standing to raise the statute of limitations, we consider the merits of that defense.

Academy Life argues that the four-year statute of limitations in A.R.S. § 12-544(3) (1984) applies. That statute provides in relevant part that a lawsuit based on a written instrument executed outside Arizona must be "commenced and prosecuted" within four years after the cause of action accrues. The parties agree that the reinsurance agreement...