Commissioner 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 ACCIDENT COMPANY. |
| Court | United States State Supreme Judicial Court of Massachusetts Supreme Court |
May 11, 1943.
Present: FIELD, C.
J., DONAHUE, QUA DOLAN, & COX, JJ.
Insurance Company Liquidation. Damages, For breach of contract. Release. Assignment. Contract, Construction, "Reinsurance Agreement."
Holders of accident and health insurance policies issued by a Massachusetts company, upon a decree under Section 180C, inserted in G. L (Ter. Ed.)
c. 175 by St.
1939, c. 472 Section 3, ordering liquidation because of the company's insolvency, whether their policies were cancellable or noncancellable and whether they were disabled or not, had claims which were not "contingent" as that word is used in the statute, but were provable if the policies had value ascertainable in any reasonable way and if they suffered loss of that value.
Determination of the value of a policy of accident or health insurance in a liquidation of the insurance company under Section 180C, inserted in G.
L. (Ter. Ed.) c. 175 by St. 1939, c. 472, Section 3, should be as of the date of the decree ordering the liquidation and as if ordinary liquidation had then begun and had proceeded to completion without any reinsurance agreement.
The proper method of determining the value of the insurance coverage of noncancellable health and accident policies, issued by a Massachusetts insurance company which had become insolvent and subjected to liquidation under Section 180C, inserted in G. L. (Ter. Ed.) c. 175 by
St. 1939, c.
472, Section 3, and held by persons not disabled, where it appeared that there was no insurance obtainable in other companies sufficiently similar in character to form a basis of comparison, was to calculate, by sound actuarial methods and the aid of applicable standard life and mortuary tables, as of the date of the decree ordering liquidation and as if there had been no insolvency, the present worth of the total estimated benefit payments that such policyholders would have received if their policies had continued in force, and to subtract therefrom the total present worthas of that date of the future gross premiums.
In the calculation of the reserve above described, it was proper on the findings of a master to use three and one half per cent interest tables instead of three per cent tables, and to assume that the rate at which nondisabled policyholders would become disabled would remain constant after they reached the age of sixty-five years.
Claims of disabled holders of policies of health and accident insurance issued by a Massachusetts insurance company had no priority over claims of nondisabled policyholders, or of creditors who were not policyholders, in liquidation of the company under Section 180C, inserted in G. L. (Ter. Ed.) c. 175 by St. 1939, c. 472, Section 3;
180B, the receiver was ordered to pay in full claims based on alleged losses occurring before the date of the decree for liquidation which he had contested but which after the decree had been adjudged valid, where it appeared that, acting under decrees entered before the decree for liquidation, he had paid in full other like claims without contesting them. In the light of the broad general plan shown by the provisions of Section
180C, inserted in G. L. (Ter. Ed.) c. 175 by St. 1939, c. 472, Section 3, a proper construction of certain provisions of a reinsurance agreement made in a liquidation of an accident and health insurance company did not require that claims held on the date of the decree for liquidation by holders of noncancellable policies who later assented under the agreement should be excluded from consideration in determining the dividend on provable claims of nonassenters that should be paid by the receiver, but they should be included; in calculating that dividend, the assets of the company should be taken at their value on the date of the decree, before the reinsurance agreement became operative.
In calculating dividends on claims of nonassenting holders of noncancellable policies and of general creditors in a liquidation of an accident and health insurance company under Section 180C, inserted in G.
L. (Ter. Ed.) c. 175 by St. 1939, c. 472, Section 3, the value of cancellable business of the company, together with its agency organization and good will as a going concern, should be included as an asset of the company as of the date of the decree for liquidation.
PETITION, filed in the Supreme Judicial Court for the county of Suffolk on February 2, 1940, by the commissioner of insurance, averring insolvency of the respondent and seeking its liquidation and other proceedings under Section 180C, inserted in G. L. (Ter. Ed.) c. 175 by St. 1939, c. 472, Section 3.
It appeared that a petition previously had been filed by the commissioner against the respondent on August 23, 1939, seeking rehabilitation proceedings under Sections 180A and 180B of the statute, and that thereunder on August 23, 1939, the commissioner had been appointed temporary receiver and on August 30, permanent receiver.
After reports by a master, the case was reserved by Qua, J., for determination by the full court.
A. B. Casson, (C.
W. Mulcahy with him,) for the receiver.
K. C. Parker, for Union Mutual Life Insurance Company.
C. Silbert & G.
S. Hoag, (C.
I. Petersen with them,) for certain dissenting policyholders.
I. Orleans of New York, for Susan L.
Stone, administratrix.
E. N. Griswold & A.
G. Carver, by leave of court, submitted a brief as amici curiae.
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, Section 180B, as inserted by St. 1939, c. 472, Section 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, Section 180C, as inserted by St. 1939, c. 472, Section 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 claims 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...
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