Bennett v. Indiana Life and Health Ins. Guar. Ass'n
| Decision Date | 21 October 1997 |
| Docket Number | No. 49A04-9605-CV-168,49A04-9605-CV-168 |
| Citation | 688 N.E.2d 171 |
| Parties | Donna D. BENNETT, as Commissioner of Insurance of the Indiana Department of Insurance, Haynes International, Inc., Inland Container Corporation, NBD Bank, N.A. f/k/a INB National Bank, and Steven L. Householder, Appellants-Respondents, v. INDIANA LIFE AND HEALTH INSURANCE GUARANTY ASSOCIATION, Appellee-Petitioner. |
| Court | Indiana Appellate Court |
Respondents-Appellants Donna D. Bennett, as Commissioner of Insurance (the "Commissioner"), Haynes International, Inc. ("Haynes"), Inland Container Corporation ("Inland"), NBD Bank, N.A. f/k/a Indiana National Bank ("INB"), and Steven L. Householder ("Householder") appeal the trial court's vacation of the Commissioner's order in their favor. The trial court's judgment is in favor of Petitioner-Appellee Indiana Life and Health Insurance Guaranty Association ("the Association").
We reverse and remand.
We find the following issues to be dispositive:
1. Whether the trial court erred in finding that Inland and Haynes, as employers and plan sponsors of a defined contribution profit-sharing and savings plan, do not have standing to seek statutory reimbursement for the employee-plan participants of the respective plans.
2. Whether the trial court erred in finding that the "contractual obligations" referred to in Ind.Code 27-8-8-5(c)(2) were not owed to resident plan participants.
3. Whether the trial court erred in finding that the measuring "life" under Ind.Code 27-8-8-5(c) refers to the life of the contract holder rather than the life of each plan participant.
4. Whether the trial court erred in finding that the Commissioner's order was preempted by the Employee Retirement Income Security Act of 1974 (ERISA).
5. Whether the trial court erred in finding that Haynes's decision to opt-out of an enhancement agreement rendered this action moot.
Inland, a manufacturer of container board and corrugated packaging, has a container board mill in Newport, box plants in Crawfordsville and Evansville, and corporate headquarters and a preprint facility in Indianapolis. Haynes, a specialty metal manufacturer, has its principal place of business in Kokomo. Both Inland and Haynes sponsor savings and pension plans (the "Inland Plan" and "Haynes Plan," respectively) for eligible employees/plan participants ("participants"). These plans are defined contribution plans that qualify for tax deferral under Sections 401(a) and 401(k) of the Internal Revenue Code, and their primary purpose is to provide participants with a convenient, tax-deferred means to save for retirement.
Although some details of the two plans differ, each provides that participants may have a portion of their compensation contributed to a trust fund to which the employer/sponsor may make matching contributions. Participants are then entitled to certain retirement and other benefits as provided in the respective plan documents, and they may withdraw money from the trust fund under specified circumstances, including termination of employment prior to retirement.
A participant may direct that his contributions be invested in one of several "funds," including a fixed income fund. The Inland Plan Administrator and the Haynes Plan's trustee or investment manager select the specific investments to be purchased with plan funds. The administrators of each plan maintain a record of each participant's individual account in the respective plans, which shows the dollar value of each participant's undivided interest in the assets held by the plan's funds. Each participant is periodically provided with a report showing these values.
From time to time, INB, as trustee for the Inland Plan, and State Street, as trustee of the Haynes Plan, purchased guaranteed investment contracts ("GICs") from various insurance companies as investments for the fixed income funds of the respective plans. A GIC is a contract issued by an insurance company pursuant to which a single deposit or series of deposits is held at a specified rate of interest for a specified period. Under a GIC, the plan trustee makes the deposit and is designated as the "contract holder" or "owner." A GIC contract allows withdrawals of funds to provide retirement benefits to participants and contains annuity provisions in the event a participant wishes to receive benefits in the form of an annuity.
In January of 1988, INB, as trustee for the Inland Plan, purchased a guaranteed investment contract (the "Inland GIC") from Executive Life Insurance Company ("Executive"). On May 10, 1988 and December 20, 1988, State Street, as trustee of the Haynes Plan, purchased GICs (collectively, the "Haynes GIC") from Executive.
Executive was a California-based company. On April 11, 1991, the California Commissioner was appointed conservator of Executive. On December 6, 1991, a California court issued an order declaring Executive insolvent.
After the declaration of Executive's insolvency, Inland and Haynes requested that the Association advise them of its position with regard to coverage under the "Indiana Life and Health Insurance Guaranty Association Law" (the "Guaranty Act" or the "Act") found at Ind.Code 27-8-8-1 et seq. The applicable version of the Guaranty Act pertains to annuity policies and annuity contracts issued by entities licensed to transact the business of insurance in Indiana. Ind.Code 27-8-8-1(a). The Act establishes the Association as a nonprofit legal entity and requires all insurers doing business in Indiana to be a member thereof. Ind.Code 27-8-8-3. In the event that a foreign insurer becomes insolvent, the Act requires the Association to (1) "guarantee, assume, or reinsure or caused to be guaranteed, assumed, or reinsured the covered policies of residents," and (2) "assure payment of the contractual obligations of the insolvent insurer to residents." Ind.Code 27-8-8-5(c)(1) and (2). The Act provides that the "aggregate liability of the [A]ssociation is not to exceed one hundred thousand dollars ($100,000) in cash values, or three hundred thousand dollars ($300,000) for all benefits, including cash values, with respect to any one (1) life." Ind.Code 27-8-8-5(l). Under the Act, the Association obtains the funds to meet its guarantee obligations by assessing its members based on their Indiana premiums. Ind.Code 27-8-8-6.
In response to Inland, the Association stated that the Inland GIC was a "covered policy" under the Act. The Association further stated that the "owner" of the Inland GIC was the resident trustee, and not the Inland Plan participants. Accordingly, the Association asserted that its obligation under the Act ran only to the trustee and only up to an aggregate liability of $100,000 in cash values or $300,000 for all benefits. In response to Haynes, the Association denied any obligation with regard to the Haynes GIC because the GIC was "owned" by a trustee which was not an Indiana resident.
Inland and Haynes requested a hearing with John F. Mortell, then Commissioner of Insurance, to determine the Association's duties under the Act. INB and Householder moved to intervene and to have Inland appointed as their representative. The motion was granted. A stipulation of facts was entered and all parties filed motions for summary judgment. On February 19, 1994, the Commissioner issued a "Memorandum of Decision, Findings of Fact, Conclusions of Law, and Order" granting the summary judgment motions filed by Inland, INB, Householder, and Haynes, and denying the motion filed by the Association.
In issuing his order, the Commissioner reasoned that "[t]he purpose of Ind.Code 27-8-8-5(c) is to preserve the insurance coverage of Indiana residents under insurance contracts of an insolvent insurer, up to a statutory limit per life, just as the coverage would have continued had the insurer not become insolvent." Commissioner's Memorandum of Decision, Findings of Fact, Conclusions of Law, and Order at 4. The Commissioner concluded that:
1. Inland, Haynes, INB, and Householder had standing to pursue this matter.
2. The Inland GIC and the Haynes GIC are covered policies within the meaning of Ind.Code 27-8-8-1 and Ind.Code 27-8-8-2.
3. The trustees of the Inland and Haynes plans are the representatives of, and owe a fiduciary duty to, each individual participant in the plans.
4. Executive's obligations to the trustees under the GICs are obligations through the trustees, to each individual participant in the plans.
5. Ind.Code 27-8-8-5 requires that the Association cover, up to the aggregate limit of $100,000 per life, each of the participants in the Inland Plan and the Haynes Plan, who on the date of entry of the order of liquidation of Executive, resided in Indiana and had an interest in a part of the Inland Plan or Haynes Plan invested in the Executive GICs.
6. By refusing to cover, up to the limits contained in Ind.Code 27-8-8-5(l), each individual participant's proportionate interest in each part of the Inland Plan and Haynes Plan invested in Executive GICs, the Association has failed to act within the meaning of Ind.Code 27-8-8-5.
Id. at 22-24. 1 The Commissioner ordered the Association to cover, up to the aggregate limit of $100,000, "each individual participant in the Haynes Plan and Inland Plan who, on the date of entry of the order of liquidation of [Executive], resided in Indiana and had an interest in a portion of the Haynes Plan or the Inland Plan invested in the [Executive] GICs." Id. at 25. The Commissioner also...
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