In re International Underwriters

• Decision Date: 30 December 1957
• Docket Number: No. 22021.,22021.
• Parties: In the Matter of INTERNATIONAL UNDERWRITERS, Inc., a corporation, Alleged Bankrupt.
• Court: U.S. District Court — Western District of Missouri

157 F. Supp. 367

In the Matter of INTERNATIONAL UNDERWRITERS, Inc., a corporation, Alleged Bankrupt.

No. 22021.

United States District Court W. D. Missouri, W. D.

December 30, 1957.

John P. Haley, Jr., Kansas City, Mo., for alleged bankrupt.

Reeder, Gisler, Griffin & Dysart, Kansas City, Mo., for petitioner.

R. JASPER SMITH, District Judge.

An involuntary petition in bankruptcy was filed against International Underwriters, Inc. on December 17, 1956. Within the required time, the alleged bankrupt answered the petition, alleging that it was an insurance corporation within the meaning of Section 22, Chapter 3, Title 11 U.S.C.A., and therefore excepted from the operation of the Bankruptcy Act. This allegation, of course, raises a plea to the jurisdiction of the Court.

The rule is well established that when the jurisdiction of a court of bankruptcy is challenged on the ground that the alleged bankrupt belongs to a class excepted from operation of the Bankruptcy Act, Title 11 U.S.C.A., the court has jurisdiction at least to determine its jurisdiction. Denver First National Bank v. Klug, 186 U.S. 202, 22 S.Ct. 899, 46 L.Ed. 1127; Smith v. Central Trust Co., 4 Cir., 139 F.2d 733. Within this limited area, the sole issue is whether or not this Court as a court of bankruptcy has jurisdiction to adjudicate as an involuntary bankrupt a corporation organized under the General and Business Corporation Act of Missouri, Chapter 351, V.A.M.S., which is empowered to act, among other things, and at the time of the commission of the alleged acts of bankruptcy was acting, principally as the attorney in fact for International Indemnity Exchange, a reciprocal insurance exchange organized pursuant to Missouri law, Sections 375.790 to 375.920, incl., V.A.M.S. The issue is dependent upon the character of International Underwriters, Inc., alleged bankrupt. To decide that it is an insurance corporation is to deprive the Court of jurisdiction. Both counsel for petitioning creditor and alleged bankrupt concede that their search, though diligent and thorough, has failed to disclose any reported case which specifically defines the status of an attorney in fact for a reciprocal insurance exchange within the definition of insurance corporation as excepted by Section 22(b), supra, of the Bankruptcy Act.

Under the provisions of Section 22(b), "any moneyed, business, or commercial corporation, except a building and loan association, a municipal, railroad, insurance, or banking corporation, owing debts to the amount of $1,000 or over, may be adjudged an involuntary bankrupt * * *" In determining the susceptibility of a corporation to bankruptcy regard must be given to several factors. There is respectable authority for the proposition that the nature and character of a corporation is dependent upon the character of its charter powers as evidenced by its articles of association and the laws of its creation. Matter of Union Guarantee & Mortgage Co., 2 Cir., 75 F.2d 984; Gamble v. Daniel, 8 Cir., 39 F.2d 447; Matter of Pacific States Savings & Loan Co., D.C., 27 F.Supp. 1009. Other authority would note the business the corporation actually transacts, rather than the business it is empowered by charter to do. In re Supreme Lodge of Masons Annuity, D.C., 286 F. 180; In re Roumanian Workers Educational Ass'n of America, 6 Cir., 108 F.2d 782; In re Wisconsin Co-op Milk Pool, D.C., 35 F. Supp. 787.

The better rule is that, in determining the amenability of a corporation to bankruptcy, the Court considers the classification of the corporation by the state of its charter, the powers conferred upon it, and the character and extent of its principal activities. Missco Homestead Ass'n, Inc., v. United States, 8 Cir., 185 F.2d 280, 22 A.L.R.2d 1015; In re Prudence Co., 2 Cir., 79 F.2d 77; In re Fidelity Assurance Ass'n, D.C., 42 F.Supp. 973. These tests of the nature and character of a corporation are to be applied as of the date of the commission of the alleged act or acts of bankruptcy. Swift v. Mobley, 5 Cir., 28 F.2d 610; Smith v. Brownsville State Bank of Brownsville, Minn., 8 Cir., 15 F.2d 792; In re New York & Westchester Water Co., D.C., 98 F. 711.

There is no question but that International Indemnity Exchange is in the insurance business, and for purposes of the bankruptcy laws must be considered an "insurance corporation". In re Lloyds of Texas, D.C., 43 F.2d 383; In re Manufacturing Lumbermen's Underwriters, D.C., 46 F.Supp. 343. However, I am required now to examine its attorney in fact, apply the tests formulated to determine its character, and decide whether it also should be considered an "insurance corporation" within the meaning of Section 22(b), supra.

Petitioning creditor contends that International Underwriters, Inc., is not an insurance corporation, and thus not excepted from bankruptcy for the reasons that it issues no policies, collects no premiums, is not under the regulation of the State Insurance Department as an insurance company, and does not hold itself out to the public as an insurance company. Petitioner further argues that the attorney in fact, International Underwriters, Inc., is but the agent for its principal, International Indemnity Exchange.

The contention that the attorney in fact issues no policies is met by reference to alleged bankrupt's automobile policy containing the reciprocal provisions effecting the exchange of insurance between subscribers, and which is signed by the president of the attorney in fact. It reads in part:

"Our Attorney is authorized to make, modify, and cancel policies exchanging insurance between subscribers and this exchange, containing such terms and agreements as our Attorney shall deem necessary or expedient to effect such exchange of insurance;"

Thus the attorney in fact executes, modifies and cancels the insurance. Furthermore, it is obligated to draft the provisions and formulate the policy so that it achieves reciprocal insurance. The quoted portion of the policy continues by authorizing the attorney in fact,

"to receive, collect, and sue for, in his own name or otherwise, all moneys due or to become due to our Attorney or to this exchange in any manner arising from or growing out of the exchange of insurance hereby provided for; to waive and receive all notices and proofs of loss; to adjust and settle all losses and claims under policies of insurance and reinsurance; to perform and waive all agreements and stipulations of any such policies; to institute and defend proceedings at law and in equity; to settle any controversy or dispute arising under any such policy of insurance; to do all things required to effect compliance with the laws of any state in which this exchange shall operate and to appoint and authorize the statutory officer of such state to accept service of process in any action, suit or proceeding against the exchange; to accept service and appear in any litigation and to prosecute, defend or compromise the same; to borrow money on behalf and in the name of this exchange; to hypothecate and pledge any and all assets and property of this exchange as security for the repayment of any moneys borrowed or to sell or otherwise dispose of any part or all of the assets and property of this exchange necessary to meet the obligations of this exchange; to perform every act necessary to carry out the purpose of this policy, with full power of substitution and revocation; and to appoint agents and representatives to perform each and all of these actions."

It is readily seen that the attorney in fact is authorized to collect premiums, contrary to contention of petitioner, and is empowered to perform and function in many other areas of insurance management. In the performance of these responsibilities the attorney in fact has not escaped regulation by the State Insurance Department. Judge Hyde, speaking for the Supreme Court of Missouri, in Yeats v. Dodson, 345 Mo. 196, 127 S.W. 2d 652, 655, one of the few Missouri decisions dealing with reciprocal insurance exchanges and their attorneys in fact, said:

"Reciprocal insurance is authorized and regulated by our Insurance Code, Art. 11, Chap. 37, Section 5966 et seq., R.S.1929, Mo.St.Ann., § 5966 et seq., p. 4547 et seq. `A reciprocal or interinsurance exchange is a group or association of persons cooperating through an attorney in fact for the purpose of insuring themselves and each other. The attorney in fact issues the contracts to and for them. And he is the one who is held responsible for a compliance with the laws of the state so far as they relate to this character of insurance. * * *'"

That portion of the insurance code of which Judge Hyde speaks and which regulates reciprocal insurance is now found in Sections 375.790 through 375.920, V.A. M.S. It authorizes reciprocal or interinsurance contracts, permits them to be executed by an attorney in fact, requires the attorney in fact to file with the Superintendent of Insurance certain instruments, records and statements, requires maintenance of reserve and guaranty funds, and provides for procurement of certificates of authority, payment of license fees and penalties to be imposed upon the attorney in fact for not complying with the prescribed regulations. Furthermore, Section 375.560, V.A.M.S., authorizes the Superintendent to enjoin from doing business or dissolve, under certain circumstances, any company functioning under the provisions relative to reciprocal insurance, Sections 375.790 through 375.920, V.A.M.S.

Even a cursory perusal of these statutes reveals how essential the existence of an attorney in fact is to reciprocal insurance. "Such contracts may be executed by an attorney in fact" . . . Section 375.800; "such subscribers so contracting among themselves shall, through their attorney, file * * *". . . Section 375.810; "the attorney shall file with the superintendent of insurance * * *". . . Section 375.820; "there shall be filed with the superintendent of...