Comm'r of Ins. v. Massachusetts Acc. Co.

• Decision Date: 15 September 1943
• Citation: 50 N.E.2d 801,314 Mass. 558
• Parties: COMMISSIONER OF INSURANCE v. MASSACHUSETTS ACC. CO.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

314 Mass. 558

50 N.E.2d 801

COMMISSIONER OF INSURANCE

v.MASSACHUSETTS ACC. CO.

Supreme Judicial Court of Massachusetts, Suffolk.

Sept. 15, 1943.

Report and Reservation from Supreme Judicial Court, Suffolk County.

Proceeding by the Commissioner of Insurance against Massachusetts Accident Company for liquidation of the company, wherein a receiver was appointed and wherein a reinsurance agreement became effective upon approval by the Supreme Judicial Court and endorsement by the insurance commissioners of Massachusetts and of Maine. On a report and reservation of questions for the Supreme Judicial Court.

Order in accordance with opinion.

Before FIELD, C. J., and DONAHUE, QUA, DOLAN, and COX, JJ.

A. B. Casson, of Boston (C. W. Mulcahy, of Boston, with him) for receiver.

K. C. Parker, of Boston, for Union Mutual Life Ins. Co.

C. Silbert, of Boston (G. S. Hoag and C. I. Peterson, both of Boston, with him) for Certain Dissenting policyholders.

I. Orleans, of New York City, for Susan L. Stone, Admx.

E. N. Griswold, of Cambridge, and A. G. Carver, of Boston, submitted a brief as Amici Curiae.

QUA, Justice.

The Massachusetts Accident Company, a domestic insurance company formerly doing an accident and health insurance business only, after having been the subject of a rehabilitation proceeding under G.L.(Ter.Ed.) c. 175, § 180B, as inserted by St.1939, c. 472, § 3, and having later been adjudged insolvent, is now in process of liquidation by the commissioner of insurance as receiver appointed by this court for that purpose under the provisions of G.L.(Ter.Ed.) c. 175, § 180C, as inserted by St.1939, c. 472, § 3. Various questions have arisen as to the allowance and priority of claims and the ascertainment of the assets of the company for the purpose of distribution. Issues of fact have been determined by a master whose original and supplemental reports have not yet been confirmed.

Section 180C provides in part that the commissioner as receiver ‘shall endeavor to obtain a proposal from a solvent company or companies to take over or assume the policies of the company [of which liquidation has been ordered] in whole or in part, or to take over or assume, on modified terms, the liabilities of the company to its policyholders, and shall submit to the court such proposal as he deems best for the interest of the policyholders.’ Accordingly the receiver sought and obtained from the Union Mutual Life Insurance Company, organized under the laws of Maine, a ‘Reinsurance and Management Agreement,’ hereinafter referred to as the Reinsurance Agreement or the agreement, which he was by decree of the court in this cause, dated February 23, 1940, authorized to execute, and which he did execute on that day. The questions before us are affected in various ways by the provisions of the Reinsurance Agreement to which we now refer in brief outline, leaving further details to be stated in connection with matters hereinafter discussed to which they particularly relate.

The Reinsurance Agreement is in two parts. Part I deals with the so called cancellable policies of the Massachusetts Accident Company, that is, those policies which were subject to cancellation by the company. This part of the accident company's business had been profitable. The Union Mutual reinsured these policies and assumed the full liability of the accident company upon them in consideration of (a) payment by the receiver to the Union Mutual of fifty-five per cent of the unearned premium reserve of those policies, taken at $56,421.80, (b) payment of the cash or its equivalent necessary for the liquidation of the accident company's liability for incurred and unpaid claim and unpaid claim expense, taken at $69,205.54, (c) payment of all premiums on cancellable policies, thereafter falling due and paid to the receiver or to the accident company and (d) the transfer to the Union Mutual of all the accident company's cancellable business and good will, including its policy contracts and agreements and all its books and records pertaining to said business. This part of the agreement provided full reinsurance without loss to all holders of cancellable policies in the accident company who did not within a specified time refuse in writing to accept the terms of the agreement, and was to become effective at once, and did become effective February 23, 1940, upon approval by the court and indorsement by the insurance commissioners of Massachusetts and of Maine. There was a provision by which policyholders assenting to Part I released the accident company and the receiver from all claims on their policies.Part II deals with the accident company's so called noncancellable policies, that is, policies which were not subject to cancellation by the company but could be kept alive as of right by the insured by the periodic payment of premiums until the insured reached a specified age, or for life, according to the terms of the particular policy. These policies had not been profitable, and the cost to the accident company of carrying out its contracts on this class of business had been the chief cause of its insolvency. Accordingly, the Union Mutual did not assume full liability upon these policies, but agreed, subject to certain qualifications and conditions, to assume only certain fixed percentages of the accident company's liability for specified types of policies and claims. The receiver agreed to transfer to the Union Mutual all property of the accident company, except the sums already payable under Part I of the agreement, and except an amount sufficient in the receiver's judgment to liquidate all expenses of the receivership, including amounts that might be ordered by the court to be paid to dissenting policyholders and all other claimants in the liquidation proceedings. Any balance of the amount retained by the receiver which might remain after the liquidation should be completed was to be conveyed to the Union Mutual for credit to the ‘Non-can Fund’ hereinafter described. The Union Mutual agreed to set up a fund, known as the ‘Non-can Fund,’ to consist of the property transferred or to be transferred to it by the receiver under Part II, of all future premiums to be received on noncancellable policies, and of certain further payments to be made into the fund by the Union Mutual. The ‘noncan’ fund was to be debited with all payments that should be made by the Union Mutual in accordance with the agreement in respect of noncancellable policies. Provisions were included under which holders of noncancellable policies might elect whether to accept or to reject the benefit of the agreement, and Part II of the agreement was never to take effect if such a percentage of noncancellable policyholders (to be ascertained as provided in the agreement) should dissent as to impair the successful consummation of that part of the agreement. Provisions by which policyholders assenting to Part II released all claims on their policies or assigned them to the receiver will be the subject of later discussion.

There were about thirty-five thousand holders of cancellable policies and four thousand nine hundred sixty-six holders of noncancellable policies exclusive of fourteen policies in dispute. Of these four thousand nine hundred sixty-six noncancellable policyholders, one hundred eighty-seven were disabled and entitled to benefits, and four thousand seven hundred seventy-nine were nondisabled, or as they are sometimes called ‘active lives.’ Of the one hundred eighty-seven disabled policyholders, one hundred eighty-two (or ninety-seven and four-tenths per cent) assented to the Reinsurance Agreement, and five (or two and six tenths per cent) elected not to assent. Of the four thousand seven hundred seventy-nine nondisabled policyholders, four thousand four hundred seventy-eight (or ninety-three and eight-tenths per cent ) assented to the agreement, and three hundred one (or six and two tenths per cent) elected not to assent. The percentage of assents being sufficient, Part II of the agreement went into effect on March 25, 1940. In accordance with Part II the receiver delivered to the Union Mutual for credit to the ‘non-can’ fund cash and securities in the amount of $1,087,615.27 and retained in his own possession cash and other property in the amount of $520,344.44 to meet the claims of nonassenting policyholders and other claimants and the expenses of the receivership.

1. Preliminary to several of the other issues is the question raised by the receiver and others whether the claims of policyholders upon these accident and health policies are contingent claims and therefore not provable against the insolvent estate except subject to the conditions prescribed in s. 180H hereinafter set forth. We are not here concerned with claims accrued and actually due and payable on February 23, 1940, the date when liquidation was finally ordered, for disability suffered before that date. Obviously such claims were not ‘contingent.’ See Attorney General v. Equitable Accident Ins. Association, 175 Mass. 196, 55 N.E. 890. We are here concerned with claims of policyholders who, because of the insolvency of the company, have lost the rights their policies would have given them of indemnity for disability which they might suffer after February 23, 1940. One paragraph of G.L.(Ter.Ed.) c. 175, § 180C, under which this liquidation is proceeding, reads, ‘The rights and liabilities of the company and of its creditors, except those holding contingent claims, and of its policyholders, stockholders or members, and of all other persons interested in its assets, shall, unless otherwise ordered by the court, be fixed as of the date of the decree ordering liquidation. The rights of claimants holding contingent claims shall be determined as provided in sections one hundred and eighty G and one hundred and eighty H.’ Section 180G relates to claims of persons having causes of action against persons insured under liability...