Bennet v. Virginia Life, Acc. and Sickness Ins. Guar. Ass'n

• Decision Date: 19 April 1996
• Docket Number: No. 950808,950808
• Citation: 251 Va. 382,468 S.E.2d 910
• Court: Virginia Supreme Court
• Parties: David H. BENNET, et al. v. VIRGINIA LIFE, ACCIDENT AND SICKNESS INSURANCE GUARANTY ASSOCIATION, et al. * Record

Page 910

468 S.E.2d 910

251 Va. 382

David H. BENNET, et al. v. VIRGINIA LIFE, ACCIDENT AND SICKNESS INSURANCE GUARANTY ASSOCIATION, et al. ^*

Record No. 950808.

Supreme Court of Virginia.

April 19, 1996.

David K. Monroe (Keith G. Swirsky, Helle R. Weeke, Galland, Kharasch, Morse & Garfinkle, on briefs), Washington, DC, for appellants.

Robert M. Rolfe (Allen S. Goolsby, Lori M. Elliott, Hunton & Williams, on brief), Richmond, for appellee Virginia Life, Accident and Sickness Insurance Guaranty Association.

No brief or argument on behalf of the State Corporation Commission.

Present: CARRICO, C.J., COMPTON, STEPHENSON, LACY, KEENAN, and KOONTZ, JJ., and COCHRAN, Retired Justice.

CARRICO, Chief Justice.

This appeal involves application of the provisions of Chapter 17 of Title 38.2 of the Code of Virginia, Code §§ 38.2-1700 through -1721. The purpose of Chapter 17 is "to protect, subject to certain limitations, policyowners, insureds, beneficiaries, annuitants, payees, and assignees of life insurance policies, accident and sickness insurance policies, annuity contracts, and supplemental contracts against failure to fulfill contractual obligations due to the impairment or insolvency of the insurers issuing those policies or contracts." Code § 38.2-1700(A).

To provide this protection, the General Assembly designated the Virginia Life, Accident and Sickness Insurance Guaranty Association (the Association), composed of all insurers licensed to transact the business of insurance in this Commonwealth, "to enable the guaranty of payment of benefits and of continuation of coverages." Code §§ 38.2-1700(A), -1702(A). Members of the Association are "subject to assessments to provide funds to carry out the purpose of [Chapter 17]." Code § 38.2-1700(A). In the case of an insolvent insurer, the Association shall "[g]uarantee, assume, or reinsure or cause to be guaranteed, assumed, or reinsured the covered policies of the insolvent insurer," Code § 38.2-1704(B)(1), and shall "[a]ssure payment of the contractual obligations of the insolvent insurer," Code § 38.2-1704(B)(2).

However, not all such policies or contracts are entitled to protection. As pertinent here, Code § 38.2-1700(C)(5) provides that Chapter 17 shall not apply to "[a]ny contract or certificate which is not issued to and owned by an individual, except to the extent of ... any annuity benefits guaranteed to an individual by an insurer under such contract or certificate." This provision is at the core of the controversy in the present case, and it was brought into focus when, on December 22, 1994, David H. Bennet and L. John Fleischmann, Trustees for the Dynamic Systems, Inc. Savings Enhancement Plan (the Plan), and Roger Nicholas, a participant in the Plan (collectively, the Plan Trustees), filed a petition for declaratory relief with the State Corporation Commission (the Commission).

The petition alleged that Dynamic Systems, Inc. (Dynamic) is a firm engaged in the business of providing engineering and management services; that Dynamic maintains the Plan for the benefit of its employees, who number "94 or more"; and that the Plan and the trust implementing it qualify under § 401(a) of the Internal Revenue Code and include a qualified cash or deferment arrangement under § 401(k). The petition alleged further that the Plan had purchased certain Guaranteed Interest Contracts (GICs) from InterAmerican Insurance Company of Illinois (InterAmerican); that InterAmerican was licensed to transact insurance business in Virginia and, consequently, was a member of the Association; and that InterAmerican had become insolvent as that term is defined in Code § 38.2-1701. Finally, the petition alleged that demand had been made upon the Association to extend coverage to the GICs but that the Association had refused the demand and the Commissioner of Insurance for Virginia had ruled that the GICs were not covered by Chapter 17 of Title 38.2.

The petition prayed for a declaration that the GICs were "annuity contracts" entitled to coverage under Code § 38.2-1700(A) and that the Association was required to guarantee the contracts. The petition also prayed for an order requiring the Association to pay the Plan Trustees approximately $1.6 million, representing the "Contract Value [of the GICs] as of 12/23/91," the date InterAmerican became insolvent.

The Association moved to dismiss the petition on the ground that the GICs were excluded from coverage by the terms of Code § 38.2-1700(C)(5). The Commission sustained the Association's motion and dismissed the petition, stating:

From the documents filed by the parties, including the actual text of the GICs themselves, it is obvious that these products are not owned by and issued to individuals, nor do they provide any annuity benefits to individuals. Thus, there is no basis under which these investments can be guaranteed by [the Association].

The Plan Trustees are here upon an appeal of right. Va. Const. art. IX, § 4; Code § 12.1-39. They argue that the statute in question is remedial in nature and, hence, should be construed liberally to promote the underlying policy of providing protection to innocent victims of insurer insolvency. The Plan Trustees maintain that the Commission's interpretation of Code § 38.2-1700(C)(5) is both unduly restrictive and inconsistent with the spirit and fundamental purposes of the statute in question.

The Plan Trustees argue further that, although the Plan and the trustees hold legal title to the GICs, the Plan participants "are in every sense the equitable and beneficial owners of the ... GICs." These investments, the Plan Trustees say, "were purchased by the Plan at the express direction of individual Plan participants using individually identifiable participant contributions to pay the premiums," the interest of each participant "was separately accounted for, and individual Plan participants received periodic statements identifying their specific interests in the ... GICs." Furthermore, the Plan Trustees point out, each participant "directed the application of funds" and had "individual rights to withdraw money under the GICs in accordance with the terms of the Plan."

We will assume, without deciding, that the Plan Trustees are correct in saying the statute in question should be liberally construed. Even so, we do not think the statute can be stretched to provide coverage for the claims advanced by the Plan Trustees. Accordingly, we find that the Commission's interpretation of Code § 38.2-1700(C)(5) is neither unduly restrictive nor inconsistent with the spirit and fundamental purposes of the statute in question.

Code § 38.2-1700(C)(5) excludes from coverage any contract or certificate which is not both issued to and owned by an individual, and nothing in the statutory language permits an interpretation that a mere beneficial or equitable owner can...