Bank of Miss. v. MISS. LIFE & HEALTH INS.

• Decision Date: 29 October 1998
• Docket Number: No. 97-CA-01144-SCT.,97-CA-01144-SCT.
• Parties: BANK OF MISSISSIPPI, Trustee of MFC Services Liquidating Trust v. MISSISSIPPI LIFE AND HEALTH INSURANCE GUARANTY ASSOCIATION.
• Court: Mississippi Supreme Court

730 So.2d 49

BANK OF MISSISSIPPI, Trustee of MFC Services Liquidating Trust v. MISSISSIPPI LIFE AND HEALTH INSURANCE GUARANTY ASSOCIATION.

No. 97-CA-01144-SCT.

Supreme Court of Mississippi.

October 29, 1998.

Rehearing Denied May 19, 1999.

Michael B. Wallace, C. Delbert Hosemann, Jr., John B. Beard, Jackson, Attorneys for Appellant.

Neville H. Boschert, Robert B. House, Kristina M. Johnson, Jackson, Attorneys for Appellee.

Before PITTMAN, P.J., and JAMES L. ROBERTS, Jr. and SMITH, JJ.

SMITH, Justice, for the Court:

¶ 1. The Bank of Mississippi (hereinafter "Bank"), serving as Trustee for the MFC Services Liquidating Trust, filed a claim with the Mississippi Life and Health Insurance Guaranty Association (hereinafter "MLHIGA") for coverage of a Guaranteed Investment Contract (hereinafter "GIC") entered into between the MFC Services Pension Plan (hereinafter "Plan") and Exclusive Life Insurance Company (hereinafter "ELIC") which became insolvent in 1991. The MLHIGA declared that the contract with ELIC was excluded from coverage under Miss. Code Ann. § 83-23-205(2)(b)(vii)(1991) because it was protected by the Federal Pension Benefit Guaranty Corporation (hereinafter "PBGC"). Then, on November 7, 1995, the Bank filed a Complaint for Declaratory Judgment and Money Damages against the MLHIGA in the Circuit Court for the First Judicial District of Hinds County alleging that the MLHIGA was liable for coverage of the GIC entered into with ELIC.

¶ 2. On February 29, 1996, the Bank filed a Motion for Partial Summary Judgment requesting that MLHIGA be held liable for coverage of the GIC, and on March 25, 1996, the MLHIGA filed a Cross-Motion for Summary Judgment on all issues. On June 26, 1996, the circuit court, now retired Circuit Court Judge William F. Coleman presiding, entered an order granting the Bank partial summary judgment on liability and held that the pre-1990 Act applied and that the GIC was covered thereunder. Next, on October 23, 1996, the MLHIGA filed a Motion for Partial Summary Judgment on Damages seeking its liability to be limited to $100,000 pursuant to the pre-1990 Act. Then, the MLHIGA requested, in a Rule 16 Conference, that Judge Swan Yerger, Judge Coleman's successor, reconsider Judge Coleman's June 26th Order granting the Bank partial summary judgment. On August 21, 1997, after reconsidering the Bank's Motion for Partial Summary Judgment and the MLHGA's Cross Motion for Summary Judgment, the circuit court, Honorable Swan Yerger presiding, entered final judgment awarding summary judgment in favor of the MLHIGA and held: (1) that the 1990 Act governed the controversy; (2) that the GIC, as protected by the PBGC, was excluded from coverage pursuant to Miss.Code Ann. § 83-23-205(2)(b)(vii) (1991); and (3) that there was no Contract Clause violation by application of the 1990 Act.

¶ 3. Aggrieved by the circuit court's decision, the Bank appeals to this Court and raises the following issues:

I. WHETHER THE CIRCUIT COURT ERRED IN CONCLUDING THAT THE 1990 ACT GOVERNED WHETHER THE GIC

WAS COVERED BY THE MLHIGA.

II. WHETHER THE CIRCUIT COURT ERRED IN CONCLUDING THAT MISS. CODE ANN. § 83-23-205(2)(b)(vii) (Rev.1991) PRECLUDED COVERAGE OF THE GIC BY THE MLHIGA.

III. WHETHER THE 1990 AMENDMENT TO THE MISSISSIPPI LIFE AND HEALTH INSURANCE GUARANTY ASSOCIATION ACT VIOLATES THE CONTRACTS CLAUSES OF THE UNITED STATES AND MISSISSIPPI CONSTITUTIONS.

IV. IF THE PRE-1990 ACT APPLIES, WHETHER MLHIGA'S LIABILITY IS LIMITED TO $100,000.

STATEMENT OF THE FACTS

¶ 4. The following is a summary of the undisputed facts in this case.

¶ 5. The Plan, adopted January 1, 1946, was a defined benefit employee pension plan within the meaning of 29 U.S.C. § 1002(2). Consequently, by law the Plan paid premiums for and had coverage with PBGC. In 1987, the Plan purchased a single premium guaranteed investment contract bearing No. CG01259A1A from ELIC. ELIC, at the time it sold the GIC to the Plan, was a member insurer of the MLHIGA within the meaning of Miss.Code Ann. § 83-23-209(h) (1991) and had paid all assessments due to the MLHIGA pursuant to Miss.Code Ann. § 83-23-217 (1991). The GIC is an unallocated annuity contract within the meaning of Miss.Code Ann. § 83-23-205(2)(a) (1991).

¶ 6. On October 9, 1990, MFC Services terminated the Plan although distribution of the Plan assets to its beneficiaries was not completed until December 1992. On April 11, 1991, the California Department of Insurance obtained a court order of conservation against ELIC, thereby rendering ELIC an impaired insurer within the meaning of Miss. Code Ann. § 83-23-209(f). On November 18, 1991, ELIC for the first time failed to meet its contractual obligations under the GIC by missing the interest payment due on that date. On December 6, 1991, the California Department of Insurance obtained a court order declaring ELIC insolvent and placing it into liquidation, thereby rendering ELIC an insolvent insurer within the meaning of Miss.Code Ann. § 83-23-209(g). Effective December 6, 1991, MLHIGA agreed to participate with the National Organization of Life Insurance Guaranty Associations and the California Insurance Department in an Enhancement Agreement approved by the California Superior Court. On November 18, 1992, ELIC failed to meet its contractual obligation for the annual interest payment in the amount of $223,565.50 and the principal payment in the amount of $2,341,000.00, both of which were due on November 18, 1992, the maturity date of the GIC.

¶ 7. On December 11, 1992, as part of the distribution of Plan assets, the MFC Services Liquidating Trust Agreement (hereinafter "Liquidating Trust") was created to hold the GIC. The GIC was assigned to the Liquidating Trust on that date, and all other Plan assets were distributed as of that date. Although the Plan had paid premiums for coverage by the PBGC, excluding the value of the GIC, the assets of the Plan were in excess of the amount of benefits guaranteed by the PBGC as of the distribution date. Accordingly, the PBGC has not made any payments to the Plan's beneficiaries. Each former participant in the Plan received a certificate of participation in the Liquidating Trust, representing his interest in the GIC, as part of the termination and distribution of Plan assets. The Bank was appointed Trustee of the Liquidating Trust, and ELIC acknowledged assignment of the GIC to the Bank by correspondence dated December 24, 1992. The Liquidating Trust is independent of the Plan and the Plan's former trust, and the Plan retains no interest in the Liquidating Trust.

¶ 8. A Rehabilitation Plan for ELIC was approved and implemented on September 3, 1993, by the California Superior Court. Pursuant to correspondence dated December 29, 1993, accompanied by an "Election Package," the California Insurance Commissioner informed the Liquidating Trust:

Now that the Rehabilitation Plan (Plan) for Executive Life Insurance Company (ELIC) has been completed, I am pleased to say that you have the opportunity to participate in this Plan designed to provide policyholders with maximum value.... The Plan became effective September 3, 1993, also referred to as the Closing Date.... Immediately prior to the Closing Date, ELIC's existing insurance and annuity contracts were restructured. The restructuring permanently adjusted the account value or benefit payment of each ELIC contract.

The Liquidating Trust elected to participate in the Rehabilitation Plan and to accept a restructured contract endorsement and assumption of the GIC by Aurora National Life Assurance Company (hereinafter "Aurora"). Neither the Plan nor the Liquidating Trust has been or will be reimbursed by the PBGC for the losses sustained by the failure of ELIC to pay the full sums due under the GIC.

¶ 9. On March 3, 1994, the Liquidating Trust filed a claim with the MLHIGA for the losses incurred by ELIC's failure to pay all sums due under the GIC. On March 18, 1994, MLHIGA informed the Liquidating Trust by correspondence that it would not pay the claim, stating:

December 6, 1991, [was] the date on which Executive Life was placed into liquidation and as a result this Association became obligated to certain Mississippi policyholders of Executive Life. We have been informed by Arthur Andersen, consultants to the National organization of Life and Health Insurance Guaranty Associations, that this contract has a shortfall under the Enhancement Agreement of approximately $847,998.24.... Section 83-23-205(2)(b)(vii) of the Mississippi Code of 1972, as amended, provides that this Association shall not provide coverage for any unallocated annuity contract issued to an employee benefit plan protected under the Federal Pension Benefit Guaranty Corporation. As a result, this Association has no statutory responsibility for the amount of the shortfall.

On November 7, 1995, the Plan filed this action against MLHIGA.

STANDARD OF REVIEW

¶ 10. "We apply a de novo standard of review in reviewing a lower court's grant of summary judgment." Seymour v. Brunswick Corp., 655 So.2d 892, 894 (Miss.1995) (citing Short v. Columbus Rubber & Gasket Co., 535 So.2d 61, 63 (Miss.1988)). "A motion for summary judgment lies only when there is no genuine issue of material fact, and the moving party is entitled to a judgment as a matter of law." Seymour, 655 So.2d at 895 (citing Miss. R. Civ. P. 56(c)). Also, in the case sub judice, the parties stipulated to the above undisputed facts, and thus, the only questions before the trial court were questions of law. "Our standard of review is de novo in passing on questions of law as well." Id. (citing Harrison County v. City of Gulfport, 557 So.2d 780, 784 (Miss.1990)).

DISCUSSION OF THE LAW

I. WHETHER THE CIRCUIT COURT ERRED IN CONCLUDING THAT THE 1990 ACT GOVERNED WHETHER THE GIC WAS COVERED BY THE MLHIGA.

¶ 11. The Bank asserts that the circuit court erred by concluding that the 1990 Act governed whether the GIC was covered by the MLHIGA...