Commissioner of Ins. v. Massachusetts Insurers Insolvency Fund

• Citation: 373 Mass. 798,370 N.E.2d 1353
• Parties: COMMISSIONER OF INSURANCE, Receiver, v. MASSACHUSETTS INSURERS INSOLVENCY FUND. Supreme Judicial Court of Massachusetts, Suffolk
• Decision Date: 06 December 1977
• Court: United States State Supreme Judicial Court of Massachusetts

Page 1353

370 N.E.2d 1353

373 Mass. 798

COMMISSIONER OF INSURANCE, Receiver, v. MASSACHUSETTS INSURERS INSOLVENCY FUND.

Supreme Judicial Court of Massachusetts, Suffolk.

Argued Sept. 14, 1977.

Decided Dec. 6, 1977.

Edward T. Dangel, III, Boston (John G. Hartnett, Boston, with him), for plaintiff.

Joseph C. Tanski, Boston, for defendant.

Harry H. Caviston, Boston (Franklin S. Prizer, Boston, with him), for interveners.

Before HENNESSEY, C. J., and QUIRICO, BRAUCHER, KAPLAN and WILKINS, JJ.

WILKINS, Justice.

On the central issue in this case, we hold that the Massachusetts Insurers Insolvency Fund (Fund) is not liable to adjusters, appraisers, attorneys, and others who furnished goods or services to Rockland Mutual Insurance Company (Rockland) prior to its insolvency, even if the Fund used those goods or the product of those services in settling Rockland's affairs.

On July 10, 1974, Rockland, a mutual insurance company incorporated under the laws of the Commonwealth, was adjudged to be insolvent, and the Commissioner of Insurance (Commissioner) was appointed permanent receiver. In early August, 1974, the Fund entered Rockland's premises and undertook to settle, investigate, negotiate, and defend claims by or against Rockland's policyholders pursuant to the Fund's statutory obligations under G.L. c. 175D. The Fund is a statutorily mandated, nonprofit, unincorporated association of all insurers writing certain kinds of direct insurance in the Commonwealth. See G.L. c. 175D, §§ 1(5), 2, 3. ¹ Chapter 175D prescribes a procedure for the formation and maintenance of the Fund in order that it will be available to settle certain unpaid claims which arise out of and are within the coverage of an insurance policy issued by an insolvent insurer. See G.L. c. 175D, §§ 3, 4, 5(1)(a ), 6. The Fund's obligations and expenses are assessed to the insurers belonging to the Fund. G.L. c. 175D, § 5(1)(c ). The net amounts which insurers must pay to the Fund, in response to assessments by the Fund, must be reflected in future rates. G.L. c. 175D, § 13. We are advised that this is the first insolvency of an insurer in which the Fund has been involved.

The Commissioner, as receiver, argues that the Fund must pay for its use of reports, estimates, appraisals, and other information prepared and delivered to Rockland prior to its insolvency by attorneys, independent claims adjusters, physical damage appraisers, and others. The Fund denies any such obligation. On August 20, 1974, the Commissioner filed a complaint seeking a determination of this issue. The receiver and the Fund stipulated that the Fund would use various documents in Rockland's claim files, without prejudice, while this case was being resolved. Thereafter, various organizations and individuals who had furnished services or had sold supplies to Rockland were permitted to intervene and to file complaints setting forth the nature of their claims and the amounts allegedly due. ²

The Fund filed a motion for summary judgment, supported by affidavits. The Commissioner and his counsel filed counter-affidavits. The motion for summary judgment was heard by a single justice of this court, and he reported the case, without decision, to the full court on a statement of agreed facts. The statement of agreed facts purports to be an agreement as to all the material facts, but it is not. There are unresolved issues of fact which would prevent a final determination of each of the claims, if the Fund were liable to the several claimants. However, the agreement as to facts contains sufficient information to permit us to determine whether the Fund's motion for summary judgment should be allowed, the basic issue the single justice reported to us.

In our discussion of the Fund's obligation to certain of Rockland's pre-insolvency creditors, it is important to note what is not involved in this case. We are not concerned with whether these creditors have rights against the receiver or any assets held by him, nor with whether the receiver, with or without prior court approval, might properly allow payment of such creditors in full from the assets of Rockland. ³ Nor are we concerned with whether the Fund may look to the assets of the insolvent insurer, held by the receiver, for reimbursement for claims paid and for expenses incurred. ⁴ In addition, we need not decide whether the Fund has authority to pay claims of such creditors voluntarily, to bind its members to reimburse it for those expenditures, and to commit the Commissioner to permit recovery of such amounts in future rates. And, we are not presented with the question whether the Fund has a right to the claim files of insolvent insurers over the objection of the receiver. ⁵ By stipulation, the Fund and the receiver avoided an impasse over the Fund's right to Rockland's records. ⁶ The receiver's complaint seeks a declaratory judgment concerning the Fund's obligation to pay certain of Rockland's pre-insolvency creditors. That question is the principal one before us.

1. The receiver and the interveners advance several theories under which the Fund is said to be liable to Rockland's pre-insolvency creditors whose goods or services have been used by the Fund in fulfilling its statutory obligations. They assert that G.L. c. 175D requires the Fund to satisfy such creditors and that, in order to make the statutory scheme operate, the receiver must have authority to direct the Fund to pay such creditors. The receiver also argues, but most briefly, that the Fund is liable to the interveners on a theory of unjust enrichment.

Chapter 175D does not mandate that the Fund pay any pre-insolvency creditor of Rockland, apart from those having covered claims arising out of and within the coverage of an insurance policy issued by Rockland. Section 5(1)(a ) of G.L. c. 175D states that the Fund is "obligated to the extent of the covered claims against the insolvent insurer existing prior to the declaration of insolvency" and to the extent of certain post-insolvency covered claims. ⁷ See G.L. c. 175D, § 5(1)(b ), to the same effect. Chapter 175D places no other explicit obligation on the Fund.

The Fund is directed by § 5(1)(c ), as amended by St.1975, c. 341, § 4, to assess its members "the amounts necessary to pay the obligations of the Fund and the expenses of handling covered claims subsequent to an insolvency . . . and other permissible expenses incurred under this chapter" (emphasis supplied). This language imposes no obligations on the Fund to pay pre-insolvency creditors of an insolvent insurer; it recites the scope of potential obligations of the Fund's member insurers to it. "Permissible expenses" refers to expenses which the Fund may incur in fulfilling its functions, but those words neither define what those expenses are nor designate any particular obligation as mandatory. ⁸ Similarly, the words "expenses of handling covered claims subsequent to an insolvency" refer only to expenses incurred by the Fund but do not define any particular expenses as mandatory obligations of the Fund. In any event, these words do not include the interveners' claims, which arose from services bargained for by the insolvent insurer prior to its insolvency.

We find nothing in G.L. c. 175D to indicate a legislative intent that the Fund must pay for goods and services furnished to an insolvent insurer prior to its insolvency, where the Fund uses those goods or the product of those services in handling claims. If such claims were an obligation of the Fund, policyholders of insurers belonging to the Fund would have to pay increased premiums so that the Fund's members could recover amounts they paid to the Fund to cover those obligations. G.L. c. 175D, § 13. Numerous business creditors could establish that their goods or their services were used by the Fund in its claims handling. If the Legislature had intended that the Fund initially, and the insurance-buying public ultimately, hold certain creditors of an insolvent insurer harmless from bad debt losses, it could have said so explicitly, as it did regarding certain claims made under policies issued by an insolvent insurer. ⁹ See G.L. c. 175D, § 1(2), note 7 supra.

Chapter 175D addresses the problem of unpaid claims arising under a policy of insurance issued by an insolvent insurer. Statute 1970, c. 261, by which G.L. c. 175D was inserted in the General Laws, is entitled "An Act establishing an insurers insolvency fund for the protection of the policyholders." In enacting G.L. c. 175D, the Legislature was not concerned with the unpaid business creditors of an insolvent insurer. Chapter 175D does not give the least indication of an intention to improve the position of unpaid business creditors of an insolvent insurer. ¹⁰

The statutory pattern of G.L. c. 175D presents an inhospitable environment for any claim against the Fund based on unjust enrichment. The interveners do not rely on such a claim, and the receiver advances the theory in the briefest of arguments.

The circumstances of this case lack the essential qualities of unjust enrichment. See National Shawmut Bank v. Fidelity Mut. Life Ins. Co., 318 Mass. 142, 145-146, 150, 61 N.E.2d 18 (1945). We see no injustice or basic unfairness in the Fund's use of the intervener's pre-insolvency work product, and thus the Fund is not unjustly enriched. The Fund has a statutorily imposed duty to settle claims against Rockland. The most the Fund can hope for is that it will be able to recoup its expenses in handling those claims. It is true that, by using assets of the insolvent insurer (not the interveners' assets), the Fund indirectly has the benefit of the interveners' services, and, as a result, the Fund (and ultimately the consuming public who must sustain any loss) may be saved certain expenses. However, as a matter of fairness, the involvement of the Fund to settle claims against Rockland creates no greater equities in favor of Rockland's business...