In re Portland Metro Health, Inc.

• Decision Date: 22 October 1981
• Docket Number: Adv. No. 81-0558.,Bankruptcy No. 381-03236
• Citation: 15 BR 102
• Parties: In re PORTLAND METRO HEALTH, INC., an Oregon Corporation, Debtor. PORTLAND METRO HEALTH, INC., an Oregon Corporation, Plaintiff, v. Josephine M. DRISCOLL, Acting Insurance Commissioner for Oregon, Defendant.
• Court: U.S. Bankruptcy Court — District of Oregon

15 B.R. 102 (1981)

In re PORTLAND METRO HEALTH, INC., an Oregon Corporation, Debtor PORTLAND METRO HEALTH, INC., an Oregon Corporation, Plaintiff, v. Josephine M. DRISCOLL, Acting Insurance Commissioner for Oregon, Defendant.

Bankruptcy No. 381-03236, Adv. No. 81-0558.

United States Bankruptcy Court, D. Oregon.

October 22, 1981.

Henry Kane, Beaverton Or., for plaintiff.

Kathleen Dahlin, Salem Or., for defendant.

FINDINGS OF FACT AND CONCLUSIONS OF LAW GRANTING DISMISSAL OF CHAPTER 11 PETITION

DONAL D. SULLIVAN, Bankruptcy Judge.

The plaintiff filed a complaint against the Acting Insurance Commissioner for the State of Oregon to determine its eligibility for relief under Chapter 11 of the Bankruptcy Code. Plaintiff contended that it is a "health maintenance organization" and as such is not within 11 U.S.C. § 109(b)(2) and (d), which excludes a "domestic insurance company" from eligibility for relief under the Code. The Insurance Commissioner responded by moving to dismiss the bankruptcy petition. The Court by agreement of the parties accelerated trial of the complaint to October 13, 1981, because of the pendency of state court receivership proceedings and the resulting jurisdictional uncertainty. At the conclusion of the trial, the Court orally announced its decision but reserved the formulation of written findings until later.

I find that for purposes of the Bankruptcy Code the plaintiff is a domestic insurance company within the meaning of 11 U.S.C. § 109(b)(2) and cannot be a debtor under Chapter 7 or Chapter 11 of the Code.

A debtor's treatment under state law is an important, although not the only guideline to the Bankruptcy Court, in determining whether the exclusions from the Bankruptcy Code in 11 U.S.C. § 109(b) apply under what the authorities call the "state classification test." 1 Collier on Bankruptcy, § 4052, at 583-593, (14th Ed. 1974), Security v. Spurlock, 65 F.2d 768 (9th Cir. 1933); Sims v. Fidelity Assurance Company, 129 F.2d 442 (4th Cir. 1942). Entities excluded from relief under the Bankruptcy Code by the state classification test and by other more flexible tests have the following things in common: (1) They are extensively regulated by well-organized departments of the State and of the United States; (2) they are subject to express statutory procedures for nonbankruptcy liquidation; (3) the nature of their business is public or quasi-public and involve interests other than those of creditors. In re First American Bank and Trust Co., 540 F.2d 343 (8th Cir. 1976). Other nonbankruptcy tests which focus upon the contract between the company and its subscribers, to the exclusion of its contracts with providers of service, describe the primary element of insurance as the "spreading and underwriting of a policyholder's risk."^* Group Life v. Royal Drug Co., 440 U.S. 205, 211, 99 S.Ct. 1067, 1073, 59 L.Ed.2d 261 (1979). Under Sims, state law classification of the debtor as an insurance company rather than the predominant or any single activity of the debtor, which may include non-insurance activities, is said to be the primary test of insurance and in this respect the Sim's rule may be inconsistent with Jordan v. Group Health, 107 F.2d 239 (D.C.Cir.1939) and the American Bank and Trust Company case, supra. Under all applicable rules, the bankruptcy court must evaluate the state's classification of the debtor as an insurer in the light of the debtor's actual operation.

The debtor is an insurance company for bankruptcy purposes because it meets the criteria imposed by all of the foregoing rules.

Plaintiff's business affects the interest of the public at large. For this reason, plaintiff is subject to extensive regulation and liquidation as an insurance company by the Insurance Commissioner under ORS 750.055 and ORS Chapter 734, and to regulation as a health maintenance organization by the Federal Department of Health and Human Services under 42 U.S.C. § 300e-11. The state classifies plaintiff as an insurer for regulatory purposes and the debtor holds certificates of authority from both Washington and Oregon to transact an insurance business. The seemingly ambiguous limitation in the characterization of the...