Foremost Life Ins. Co. v. Department of Ins.

• Decision Date: 24 September 1980
• Docket Number: No. 980S373,980S373
• Citation: 409 N.E.2d 1092,274 Ind. 181
• Parties: FOREMOST LIFE INSURANCE COMPANY, Appellant, v. DEPARTMENT OF INSURANCE, State of Indiana, Liquidator of Keystone Life Insurance Company, Appellee.
• Court: Indiana Supreme Court

Page 1092

409 N.E.2d 1092

274 Ind. 181

FOREMOST LIFE INSURANCE COMPANY, Appellant, v. DEPARTMENT OF INSURANCE, State of Indiana, Liquidator of Keystone Life Insurance Company, Appellee.

No. 980S373.

Supreme Court of Indiana.

Sept. 24, 1980.

C. Wendell Martin, Bredell, Martin, McTurnan & Meyer, Indianapolis, for appellant.

Karl J. Stipher and Charles T. Richardson, Baker & Daniels, Indianapolis, for appellee.

ON PETITION TO TRANSFER

PIVARNIK, Justice.

This cause comes to us on a petition to transfer from an opinion and judgment of the First District Court of Appeals. See Foremost Life Insurance Co. v. Dept. of Ins., (1979) Ind.App., 395 N.E.2d 418. Foremost Life Insurance Company took an interlocutory appeal from an adverse order in the trial court denying it the status of a Class III creditor under Ind.Code § 27-1-4-15 (Burns 1977 Supp.), in the statutory liquidation of Keystone Life Insurance Company. Foremost contends that by virtue of a certain life and disability reinsurance treaty entered into with Keystone, Foremost acquired an insurance interest that the legislature intended to be preferred over general creditors. The trial court found that Foremost did not come under any of the designated categories of Class III and that their claim falls under Class IV as a general creditor.

The priority statute in issue, § 27-1-4-15, provides:

Claims against a company declared to be insolvent under the provisions of this chapter shall be satisfied in the following order of priority:

(1) Expenses of administration.

(2) All wages actually owing to its employees for services rendered within three (3) months prior to the commencement of such proceeding, not exceeding three hundred dollars ($300) to each employee, which shall be paid prior to the payment of any other debt or claim and subject to the direction of the court, shall be paid as soon as possible after liquidation has been commenced.

(3) Claims by policyholders, beneficiaries, and insureds arising from and within the coverage of and not in excess of the applicable limits of insurance policies and contracts issued by the company, and liability claims against insured which claims are within the coverage of and not in excess of the applicable limits of insurance policies and insurance contracts issued by the company and claims of the Indiana Insurance Guaranty Association established under IC 27-6-8 and any similar organization in another state.

(4) All other claims.

When Keystone became insolvent it fell upon Foremost, under its re-insurance treaty, to step in and meet the obligations re-insured by Keystone, including but not limited to, claims under the insurance policies and contracts issued by Foremost and re-insured by Keystone that comprise some of the enumerated statuses under Class III of the above statute.

The Court of Appeals reversed in part the judgment of the trial court, by holding that where Foremost paid claims of the insurance consumers, such as the policyholders' beneficiaries and insureds under Class III of the priority statute, in those cases, Foremost had the equitable right of subrogation and therefore had a preferred right over general creditors. The Court of Appeals further held that after the enumerated statuses in Class III were paid, Foremost would then come under Class III to receive any assets remaining, to pay their subrogated claims. It was generally agreed by all parties that this claim by Foremost, which amounted to about $1,000,000, would exhaust all remaining assets of the liquidation and all other general creditors would receive nothing. We find the Court of Appeals reasoning to be in error, and accordingly vacate the opinion of the Court of Appeals and affirm the trial court.

The facts pertinent to the resolution of the issue before us were stipulated to by the parties below. Keystone is a domestic stock insurance company that has no authority to conduct insurance business beyond Indiana borders. From approximately June, 1973, to April, 1978, Keystone sold group, credit life and disability insurance directly to Indiana consumers. These direct policy holders of Keystone are not parties to this appeal. The re-insurance treaty was designed to enable Keystone to conduct insurance business in states other than Indiana. Foremost is a Michigan stock insurance company that holds certificates of authority to write insurance in every state with the exceptions of New York and Hawaii. Part of Foremost's business is to sell credit life and disability insurance. Central State Agency, Inc., (CSA) is a Michigan corporation doing business as a general insurance agent. Keystone and Central State Agency, Inc., were controlled by the same individuals. In September, 1972, CSA entered into an agent's agreement with Foremost, whereby CSA agreed to sell Foremost insurance products in states other than Indiana. CSA specialized in credit life and disability insurance. The re-insurance treaty at issue here was entered into between Foremost and Keystone on July 1, 1973. The provisions of the treaty are described in the following stipulations:

8. Under Article I of the Treaty, Foremost "ceded" (transferred) to Keystone credit insurance business originally generated by CSA for Foremost outside Indiana under the Agent's Agreement between CSA and Foremost. Keystone "accepted" as reinsurance Foremost's liability under such credit insurance. In other words, Keystone undertook financial and administrative obligations which Foremost had under its outstanding credit insurance certificates to the policyholders (consumers-debtors) of Foremost outside Indiana. Initially, Foremost collected the premiums paid by the policyholders less CSA's agent's commission), kept for itself as a fee 2% of the net written premiums, and paid the remainder to Keystone. With that money, Keystone was to set up reserves, pay claims and litigation costs, and take care of administrative expenses. Later, CSA collected the premiums for Foremost, deducted CSA's agent's commission, paid Foremost the 2% fee, and paid the remainder to Keystone.

9. Foremost's policyholders were not formally informed of the Treaty or of Keystone's obligations to Foremost under the Treaty. Foremost remained legally liable to its policyholders under the credit insurance in the event Keystone failed to perform its obligations to Foremost under the Treaty. There is no privity of contract between Keystone and the Foremost policyholders.

Under the treaty, then, Foremost transferred to Keystone credit insurance business originally generated by CSA for Foremost outside Indiana under the agent's agreement between CSA and Foremost. The treaty meant that Keystone undertook financial and administrative obligations which Foremost had under its outstanding credit insurance certificates. CSA was paid an agent's commission for generating the business for Foremost, Foremost was paid a two percent fee, and Keystone received the remainder of the collected premiums. Under insurance parlance, Keystone was the re-insuror which undertook financial obligations of another insurance company, called the "ceding" or re-insured company, on account of certificates of credit insurance issued originally by the other re-insured insurance company to the policyholders of the other company. It was also stipulated by the parties that Keystone did re-insurance business with several other companies but, for the years 1975, 1976, and 1977, more than fifty percent of Keystone's re-insurance business was with Foremost. It appears, on the other hand, that the Keystone business was not a significant part of Foremost's total business during those years. Foremost is solvent and apparently able to pay its obligations, including those re-insured by Keystone.

The precise question before us, then, is: should an insurance company, here Foremost, that has a re-insurance treaty with another insurance company that is insolvent, here Keystone, get any priority under Indiana Code § 27-1-4-15(3) in the insolvent company's limited assets; or should the re-insured insurance company instead be treated merely as a Class IV general creditor? This question must be resolved by interpreting the intention of the legislature. Prior to the enactment of Indiana Code § 27-1-4-15, it was generally recognized that the ordinary insurance consumer was not given a preference under the insolvency of a carrier. The typical insurance consumers, who are the policyholders, beneficiaries, and insureds, had no preference over any other creditors of the insolvent carrier. In Cummings Wholesale Elec. Co. v. Homeowners Ins. Co., (7th Cir. 1974) 492 F.2d 268, cert. denied, 419 U.S. 883, 95 S.Ct. 149, 42 L.Ed.2d 123, the Seventh Circuit Court of Appeals held that a preference could be created only by express legislative action. Such legislative action by the Indiana Legislature came about in 1977 with Ind.Code § 27-1-4-15 (Burns 1977 Supp.) It is clear that the Legislature intended to protect the typical insurance consumer by using the terms "policyholders, beneficiaries, and insureds."

In interpreting a statute we are to ascertain and give effect to the intent of the legislature. State ex rel. Baker v. Grange, (1929) 200 Ind. 506, 510, 165 N.E. 239, 240; Ervin v. Review Bd., (1977) Ind.App., 364 N.E.2d 1189, 1192; Abrams v. Legbandt, (1974) 160 Ind.App. 379, 388, 312 N.E.2d 113, 118; Marhoefer Packing Co. v. Indiana Dept. of State Revenue, (1973) 157 Ind.App. 505, 516, 301 N.E.2d 209, 214.

In determining the legislative intent, the language of the statute itself must be examined, including the grammatical structure of the clause or sentence in issue. If possible, effect and meaning must be given to every word, and no part of the statute is to be held meaningless if that part can be reconciled with the rest of the statute. Ervin v. Review Bd., supra; Marhoefer Packing Co. v. Indiana Dept. of State Revenue, supra. Further, a statute is to be examined and interpreted as...