In re Stoddard

• Decision Date: 24 February 1926
• Citation: 151 N.E. 159,242 N.Y. 148
• Parties: In re STODDARD, Superintendent of Insurance. In re NORSKE LLOYD INS. CO., Limited.
• Court: New York Court of Appeals Court of Appeals

242 N.Y. 148

151 N.E. 159

In re STODDARD, Superintendent of Insurance. In re NORSKE LLOYD INS. CO., Limited.

Court of Appeals of New York.

Feb. 24, 1926.

In the matter of the application of the People, by Francis R. Stoddard, Jr., as Superintendent of Insurance, for an order to take possession of the property and assets of the Norske Lloyd Insurance Company, Limited. An order approving and confirming the report of the State Superintendent of Insurance as liquidator (207 N. Y. S. 50, 123 Misc. Rep. 877) was affirmed by the Appellate Division (210 N. Y. S. 904, 214 App. Div. 777), and the Norwegian receiver of Norske Lloyd Insurance Company, Limited, and others appeal, by permission, on questions certified.

Orders reversed in part, case remanded, and questions answered.

The following questions were certified:

‘(1) Did the Supreme Court of the state of New York have jurisdiction in the above-entitled proceeding to make the order appealed from authorizing, directing and permitting the New York liquidator to pay from the United States assets of the Norske Lloyd Insurance Company, Limited, the allowed and approved claims of claimants described in the order appealed from as claimants of the second class?

‘(2) Are the surplus assets in the United States that should be transmitted to the Norwegian liquidator, in the case at bar, those assets of the Norske Lloyd Insurance Company, Limited, which remain after payment of the New York liquidator of (1) the expenses of the New York liquidation, and (2) all allowed and approved claims, in full with interest of claimants described in the order appealed from as claimants of the first and second classes?’Appeal from Supreme Court, Appellate Division, First department.

Charles E. Hughes, Clarence B. Smith, and Wendell P. Barker, all of New York City, for appellants.

Alfred C. Bennett and Clarence C. Fowler, both of New York City, for respondent Superintendent of Insurance.

Oscar R. Houston and M. P. Detels, both of New York City, for respondents Standard Marine Ins. Co. and others.

William H. Hotchkiss, of New York City, for respondents Staples Transp. Co. and others.

Louis J. Wolff and David Rumsey, both of New York City, for respondents United States policyholders and creditors.

Frank A. Bernero, of New York City, for respondents J. Aron & Co. and others.

Willard U. Taylor and Irving Mariash, both of New York City, for respondents American claimants.

Noah A. Stancliffe and Charles J. Hardy, Jr., both of New York City, for respondent Woodin Transp. Co.

HISCOCK, C. J.

We are called on to decide important questions arising in connectionwith the distribution of assets of an insolvent foreign insurance company now in the possession of the superintendent of insurance, in accordance with the Insurance Law (Consol. Laws, c. 28). The Norske Lloyd Insurance Company, Limited, was organized under the laws of Norway. Several years ago it undertook to do business in this state, and in accordance with the provisions of our statute it made a deposit of securities with the superintendent of insurance, and also with the Guaranty Trust Company under deeds of trust. Subsequently it became insolvent, and a domiciliary or primary receiver was appointed in Norway and a liquidator in England and, in proceedings duly authorized by our statute, the superintendent of insurance took possession of the securities deposited as hereinbefore stated, of securities deposited in trust with the authorities of the state of Ohio, and of all other assets found within our jurisdiction which he thereafter held in accordance with the definition and provisions of the statute as an ancillary receiver of a foreign corporation. In due season he presented to the Supreme Court a report showing the amount of assets which had thus come into his possession, and so far as ascertained the amount of claims based on policies issued by said insurance company. These claims were allocated to three general classes. They were those based: First, upon policies issued to residents or citizens by agencies of said insurance company doing business in this country; second upon policies issued by said insurance company outside of this country to persons residing within this country; and, third, upon policies issued to nonresidents of this country by foreign agencies of the insurance company. His report recommended that the property deposited with the insurance department or in trust with the trust company should be applied to the payment of all claims included in the first class, and concluded that creditors upon policies issued without the United States were not entitled to be paid from the assets in his possession, leading to the inference that, in his opinion, any surplus of assets or proceeds thereof remaining after payment of creditors of the first class should be transmitted to the domiciliary receiver in Norway. The courts below have approved this report and recommendation to the extent of providing that the proceeds of the deposited funds and assets should be first applied to the payment of all claims based upon policies issued in this country by agencies of said insurance company. They then have gone farther, however, and provided that any surplus of assets after such payments should be applied to the satisfaction of claims held by citizens and residents of this country, based upon policies issued by the company through foreign agencies. The third class of creditors was eliminated from consideration in the distribution of these assets.

The Norwegian or domiciliary receiver and the British liquidator have appealed from this disposition, and have thereby presented the question whether the assets in the hands of the superintendent of insurance should be applied otherwise than in accordance with the statute providing for deposits with the insurance department, and in trust hereinbefore referred to, and which they claim permits the application of such assets only to the satisfaction of claims on policies issued by agencies doing business within this country, and excludes claims upon policies issued abroad. They do not urge that there are any persons or corporations included in the first class who, although holding policies issued in this country, ought to be excluded under the statute because of nonresidence. The respondents not only claim that the statute authorizes satisfaction of claims held by persons residing in or citizens of this country upon policies issued outside of it, but also insist that under general principles of equity and public policy it is the duty of the superintendent having these assets in his possession to apply them to the satisfaction of claims of domestic creditors.

[1] While the questions certified to us by the Appellate Division are in terms broad enough to include an interpretation of the statute under the opposing contentions thus made, we nevertheless have serious doubts whether such interpretation is before us. If the statute is to be construed as including residents and citizens of this country having claims upon policies issued abroad, they could not have been placed in a second class by the orders before us. The statute does not classify in different degrees of preference those who are entitled to its protection. They are all in the same class; claimants are entitled to equal protection of the statute or to none at all, and when, therefore, the courts decided that certain claimants should be first paid out of the proceeds of the property deposited, and that creditors having claims upon policies issued abroad should be subordinated thereto and included in a second class, payable only out of any surplus left after payment of the first class, they seem to us necessarily to have held that such second class were not protected by the statute, and were not entitled to share in the distribution made thereunder, and none of such creditors have taken any appeal from the orders which were made thus interpreting the statute. Since, however, all of the counsel have argued the interpretation of the statute, and since possibly the may be some aspect of the proceedings not made plain to us which renders its construction desirable, we shall consider its meaning.

[2] Various amendments have been enacted of the statute as it stood at the time the deposits in question were made. We do not think that any of these substantially change its meaning in respect of the question under review. If they did, the rights of the Insurance Company would be governed by the provisions in force when its securities were deposited.

[3] The crucial words of the provisions which fix the rights of policy holders are few in number. Originally they were to the effect that the securities deposited with the insurance department or in trust with the trust company should be ‘for the benefit of the policy holders in any of such states or the United States,’ or ‘for the general benefit and security of all its policy holders in the United States.’ Some of these provisions have now been amended so as to provide that the deposits shall be held for the protection of ‘policy holers and creditors within the United States,’ but we do not regard these amendments as changing the meaning of the statute, for in this case, at least, the creditors are such because policy holders. The deeds of trust executed by this particular insurance company, after referring to the provisions of section 27 of the statute, and stating that they are executed to the end that the statute might be fully complied with, provide that the trustee shall hold the deposited property for the purpose of paying ‘all lawful and valid claims or demands of policy holders or creditors in the United States.’ Of course the meaning of the language used in these deeds is to be interpreted in harmony with the language of the statute which was being complied with. The specific question, therefore, is whether the words ‘policy holders in the United States,’ or ‘within the United States,’...