Grimes v. Crown Life Ins. Co., 86-1905

• Decision Date: 16 September 1988
• Docket Number: No. 86-1905,86-1905
• Parties: Gerald GRIMES, Insurance Commissioner of the State of Oklahoma, Receiver for the United Equity Life Insurance Company; and Oklahoma Life and Health Guaranty Association, Plaintiffs- Appellants, v. CROWN LIFE INSURANCE COMPANY, Defendant-Appellee. Reinsurance Association of America and American Counsel of Life Insurance (ACLI), Amici Curiae.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 699

857 F.2d 699

Gerald GRIMES, Insurance Commissioner of the State of

Oklahoma, Receiver for the United Equity Life

Insurance Company; and Oklahoma Life

and Health Guaranty

Association, Plaintiffs- Appellants, v. CROWN LIFE INSURANCE COMPANY, Defendant-Appellee.

Reinsurance Association of America and American Counsel of

Life Insurance (ACLI), Amici Curiae.

No. 86-1905.

United States Court of Appeals, Tenth Circuit.

Sept. 16, 1988.

Rehearing Denied Oct. 14, 1988.

Bert E. Marshall, Gen. Counsel, Oklahoma Ins. Dept., Oklahoma City, Okl., for Gerald Grimes, plaintiff-appellant.

Don J. Gutteridge, Jr. (Horace G. Rhodes and James W. Rhodes with him, on the briefs), Kerr, Irvine & Rhodes, Oklahoma City, Okl., for Oklahoma Life and Health Guar. Ass'n, plaintiff-appellant.

Burck Bailey, Fellers, Snider, Blankenship, Bailey & Tippens, Oklahoma City, Okl. (C. Wayne Litchfield, Litchfield & Wheeler, Oklahoma City, Okl., with him, on the brief), for Crown Life Ins. Co., defendant-appellee.

Daniel J. Conway, counsel for Reinsurance Ass'n of America, Washington, D.C., Jack H. Blaine, Washington, D.C., and Phillip E. Stano, counsel for American Council of Life Ins., on the brief, for amici curiae.

Before ANDERSON, BALDOCK and BRORBY, Circuit Judges.

STEPHEN H. ANDERSON, Circuit Judge.

This dispute arises out of efforts by the Oklahoma Insurance Commissioner as liquidator of the United Equity Life Insurance Company ("UELIC") to realize on a "Coinsurance Indemnity Reinsurance Agreement" (the "Agreement") entered into between UELIC and Crown Life Insurance Company ("Crown"). Gerald Grimes, the Oklahoma Insurance Commissioner, determined before UELIC was placed in liquidation that the Agreement between UELIC and Crown was sufficient under state law to allow UELIC to transfer some of its insurance liability to Crown and thus continue to write insurance for policyholders. After UELIC was put into liquidation, however, a dispute about the validity and extent of the coverage of the policy arose. This appeal centers on the interpretation of certain provisions contained in the Agreement; the effect of the interpretation of the Agreement by the Oklahoma Commissioner of Insurance; and, finally, a determination as to the proper forum in which to decide these questions.

I.

The resolution of these issues depends on the following facts. On April 24, 1984, UELIC was placed in receivership pursuant to Oklahoma state law by the District Court of Oklahoma County. Grimes was appointed as UELIC's receiver. He was charged by the court with ascertaining "UELIC's assets and liabilities." R. Vol. I Tab 13 Exh. A at 2. Two days thereafter, the state district court entered an order staying "the commencement or prosecution of any actions, or the obtaining of preferences, judgments, attachments, or other liens, or the making of any levy against the receivership estate or against the assets or any part thereof." Id. at Exh. B.

Thereafter, Crown informed Grimes that it was rescinding the reinsurance Agreement it had entered with UELIC and that Crown considered the Agreement void from the beginning because of UELIC's misrepresentation of its financial position. Grimes, who had previously decided that this Agreement was sufficient under state law to protect UELIC's policyholders and thus allowed UELIC to transfer some of its liabilities to Crown, subsequently applied to the receivership court for permission to file a declaratory judgment action against Crown to determine the legal obligations of the parties under their Agreement. ¹ The Oklahoma court found that the interpretation of the contract was disputed and that "the performance by Crown under said Agreement will materially effect (sic) the ability of the Receiver to pay claims to insureds of United Equity," id. at Exh. C, and granted permission for Grimes to bring this action which he brought in the same state court in which the receivership was pending. However, Crown successfully petitioned for removal of the declaratory judgment action from state to federal court. The federal district court declined to remand on Grimes' assertion that it was without jurisdiction to hear this case.

The issues which were before the federal court prior to trial were, (1) whether the contract was void because it was induced by fraud; (2) whether the contract was ambiguous; (3) whether the Agreement called for Crown to bear the risk of UELIC's insolvency; (4) whether the Agreement required Crown to reimburse UELIC based on claims which it had incurred or only on claims which UELIC had paid; and, (5) whether Crown was entitled to offset premiums owed it by UELIC against any amount which it was required under the Agreement to pay. The district court, without addressing the issue of revocation or misrepresentation decided all other issues in favor of Crown. R. Vol. I Tab 86.

Grimes appeals this decision arguing that the federal district court did not have jurisdiction to hear this dispute, or, alternatively, that if the court did have jurisdiction, it should have abstained from its exercise. Grimes raises other challenges to the district court's decision, but because we determine that in this case the federal district court should have abstained, we do not address the merits of these claims.

II.

Grimes first asserts, based primarily on a theory of in rem jurisdiction, that the federal district court did not have jurisdiction to hear this suit. He argues that the state district court has already taken jurisdiction over the assets of UELIC, and that one of these assets is the reinsurance contract with Crown. Accordingly, since the state court had jurisdiction over all of the assets first, Grimes argues that the federal court had no jurisdiction to determine UELIC's rights in the insurance contract. See Blackhawk Heating & Plumbing Co., Inc. v. Geeslin, 530 F.2d 154 (7th Cir.1976); Professional Const. Consultants, Inc. v. Grimes, 552 F.Supp. 539 (W.D.Okla.1982). On the other hand, Crown argues that this suit is one in which Grimes as receiver for UELIC, brings a plenary in personam action against Crown to obtain a judicial determination of Crown's obligations under the contract. Central States S.E. and S.W. Areas Health and Welfare Fund v. Old Sec. Life Ins. Co., 600 F.2d 671, (7th Cir.1979); Barrett v. International Underwriters Inc., 346 F.2d 345, 348-49 (7th Cir.1965). As such, Crown argues, it is well within the jurisdictional prerogatives of the federal court.

We are persuaded by Crown's argument because the Oklahoma County District Court specifically authorized a separate judicial action to determine the different parties' rights under the reinsurance agreement. Once the state court has authorized such an independent proceeding, the larger context in which it occurs does not present a bar to federal jurisdiction where the case is properly removed to a federal court. See Levy v. Lewis, 635 F.2d 960, 964-66 (2d Cir.1980) (" 'Hence other courts, except when called upon by the court of primary jurisdiction for assistance, are excluded from participation. This should be particularly true as to proceedings for the liquidation of insolvent insurance companies....' ") (quoting Motlow v. Southern Holding & Sec. Corp., 95 F.2d 721, 725-26 (8th Cir.), cert. denied, 305 U.S. 609, 59 S.Ct. 68, 83 L.Ed. 388 (1938) (emphasis added). In such a context the ruling by the federal courts as to the rights of the parties in the contract will not "interfere with the constructive possession" of that asset by the Oklahoma County District Court, nor does it create any danger of inconsistent adjudications because the action is only before the federal court. Accordingly, we find that the Oklahoma County District Court's jurisdiction over all the assets in UELIC's estate, does not jurisdictionally bar the federal court from determining the value of one of those assets in this context. ² See Law Enforcement Ins. Co Ltd. v. Corcoran, 807 F.2d 38, 41-42 (2d Cir.1986), cert. denied, --- U.S. ----, 107 S.Ct. 1896, 95 L.Ed.2d 503 (1987); Levy, 635 F.2d at 964-66; Metropolitan Life Ins. Co. v. Board of Directors of Wis. Ins. Sec. Fund, 572 F.Supp. 460, 470 (W.D.Wis.1983); In Re All-Star Ins. Corp., 484 F.Supp. 623, 624-25 (E.D.Wis.1980).

Grimes' second jurisdictional argument also fails on the same ground. Grimes argues that the Oklahoma statutory scheme for conducting insurance liquidation gives the Oklahoma County District Court jurisdiction over all claims "both for and against an insurance company in liquidation." Professional Const. Consultants, 552 F.Supp. at 541 (quoting Knickerbocker Agency v. Holz, 4 N.Y.2d 245, 250, 149 N.E.2d 885, 889, 173 N.Y.S.2d 602, 607 (1958)). According to Grimes, such a state scheme in conjunction with the McCarran-Ferguson Act ³ which expresses the congressional policy of leaving insurance regulation to the states, gives Oklahoma courts exclusive original jurisdiction over this declaratory judgment action against Crown.

Nonetheless, even if Grimes' argument is correct, he did not seek to obtain a determination of Crown's liability as a part of the liquidation action. He instead obtained permission to file a separate declaratory judgment action which he brought before a different judge in the same court. Once the liquidation court approved the separate pursuit of a declaratory judgment action, it had, in effect, called upon another court for assistance. Thus, when this action was properly removed, it was within the jurisdiction of the federal court.

As a further matter, we are hesitant to accept the proposition that a state statute, even when buttressed by the federal policy expressed in the McCarran-Ferguson Act, can affect the invocation of federal diversity jurisdiction. See Atlantic & Pac. Ins. Co. v. Combined Ins. Co. of Am., 312 F.2d 513, 515 (10th Cir.1962) ("The McCarran Act serves to limit the authority of federal regulatory agencies as to practices in the insurance business in...