Hobbs v. Occidental Life Ins. Co., No. 1514.

• Court: United States Courts of Appeals. United States Court of Appeals (10th Circuit)
• Writing for the Court: LEWIS, PHILLIPS, and BRATTON, Circuit
• Citation: 87 F.2d 380
• Parties: HOBBS, Com'r of Insurance of State of Kansas, v. OCCIDENTAL LIFE INS. CO. et al.
• Docket Number: No. 1514.
• Decision Date: 12 January 1937

87 F.2d 380 (1937)

HOBBS, Com'r of Insurance of State of Kansas,
v.
OCCIDENTAL LIFE INS. CO. et al.

No. 1514.

Circuit Court of Appeals, Tenth Circuit.

January 12, 1937.

87 F.2d 381

John G. Egan and John L. Hunt, both of Topeka, Kan. (Clarence V. Beck and John H. Hunt, both of Topeka, Kan., on the brief), for appellant.

George E. Brammer, of Des Moines, Iowa (Joseph Brody, Clyde B. Charlton, and Louis A. Parker, all of Des Moines, Iowa, on the brief), for appellee Occidental Life Ins. Co.

Jerome S. Koehler, of Kansas City, Kan. (Thomas C. Lysaught, of Kansas City, Kan., on the brief), for appellee receiver.

Before LEWIS, PHILLIPS, and BRATTON, Circuit Judges.

BRATTON, Circuit Judge.

The Federal Reserve Life Insurance Company was organized under the laws of Kansas. One of its policyholders who was also a stockholder, acting for himself and all others similarly situated, instituted this action for the appointment of a liquidating receiver. An order was entered directing that the Commissioner of Insurance of the state be notified of the pendency of the suit and that he be permitted to intervene if he so desired. A copy of such order and a copy of the amended bill were served on the commissioner, but he failed to appear. The court found on May 22, 1936, that the affairs of the company had been wrongfully and dishonestly managed; that its assets were being dissipated; and that it was hopelessly insolvent. A temporary receiver was thereupon appointed and he was directed to seek proposals from solvent insurance companies to reinsure the outstanding policies of the failed company. Five days thereafter the company filed an answer in which it consented to the appointment of a permanent receiver and to the entry of a final decree directing reinsurance, rehabilitation, or liquidation of its affairs. Two days later the temporary receiver was appointed permanent receiver. The receiver and Occidental Life Insurance Company, a corporation organized under the laws of California and authorized to engage in business in Kansas, entered into a contract on June 13th, in which it was provided that, subject to

87 F.2d 382

the liens, terms and conditions of the agreement and not otherwise, Occidental reinsured and assumed the liabilities of Federal Reserve under its policies of insurance which were in force on May 22d; that co-incident with the approval of the contract, title to all of the assets of Federal Reserve including those on deposit with the insurance department of any state, should vest in Occidental and that the receiver should execute appropriate instruments of conveyance or assignment; that all such assets and the profits from them, except books, records, office furniture, fixtures, and appliances, together with the net gains from the business reinsured should be administered in a separate account called Federal Reserve fund; that since the assets of Federal Reserve at their then value, were insufficient to cover the reserve liabilities of that company a lien of 50 per cent. of the net equity should be placed against each policy thus reinsured with provision that the lien should be adjusted by an appraisal of the assets as of May 22d, and should be thereafter adjusted from time to time by the application of the net profits arising out of the business of the Federal Reserve, but in no event should it exceed 50 per cent. of such net equity; that if, at the end of any calendar year prior to 1951 or on June 30, 1951, the total lien and accrued interest on all policies then in force had decreased to such an extent that it was equal to or less than the equivalent of $11 per $1,000 of premium paying insurance then in force, Occidental should contribute to the Federal Reserve fund an amount sufficient to discharge such lien; that if on June 30, 1951, such lien should exceed the named amount, Occidental should contribute to the fund the sum of $11 per $1,000 of such insurance, less such percentage thereof as that contribution bears to the net equity of the policies reinsured; that thereafter the lien should not be subject to further change except for interest; that the lien against any policy could be discharged at any time by the payment to Occidental of the entire amount and that thereupon such policy should become free and not subject to subsequent adjustment of the lien; that death claims should be paid in full, the reduction having exclusive application to the net equity in the policies; that upon the application of the insured named in any reinsured policy, Occidental should have the right to issue a new policy on its form and credit thereto any amount to which the insured would then be entitled under the terms of the agreement; that Occidental did not assume any liability of Federal Reserve except as set forth in the agreement; and that Occidental should promptly mail to the insured in each policy in force on May 22d, a printed copy of the agreement and a certificate of assumption of liability. The agreement contained many other provisions, but this resume of the pertinent ones will suffice for present purposes

The court's approval, appended to the contract, was dated June 13th; and on the same date a decree was entered approving the agreement, directing the receiver to carry its provisions into execution and transferring all of the assets to Occidental, but with the provision that every holder of a policy who elected to reject the benefits of the agreement should within thirty days after Occidental mailed the notice of its assumption, deliver to the receiver his rejection in writing; that such an election should be considered as a claim for the cash surrender value of his policy as of May 22d, plus any amount thereafter paid on such insurance less the cost of carrying such insurance and less any amount paid by the receiver as a premium on any reinsurance treaty or contract covering such policy; that Occidental should be under no obligation or liability of any kind to any policyholder thus electing to reject benefits under the agreement; and that all policyholders who failed to reject such benefits in the manner and within the time specified should be deemed to have accepted such reinsurance contract and should be conclusively bound by its terms.

There were more than 27,000 policyholders on May 22d. Occidental sent each of them a copy of the agreement and the notice as directed. The receiver also mailed each of them a notice of the decree and called attention to the provision that all who failed to reject the benefits of the agreement should be deemed to have...