International Co. v. Occidental Life Ins. Co.

• Decision Date: 11 August 1938
• Docket Number: No. 11085.,11085.
• Parties: INTERNATIONAL CO. OF ST. LOUIS v. OCCIDENTAL LIFE INS. CO. (OF CALIFORNIA).
• Court: U.S. Court of Appeals — Eighth Circuit

98 F.2d 138 (1938)

INTERNATIONAL CO. OF ST. LOUIS v. OCCIDENTAL LIFE INS. CO. (OF CALIFORNIA).^*

No. 11085.

Circuit Court of Appeals, Eighth Circuit.

July 12, 1938.

Rehearing Denied August 11, 1938.

W. L. Mason, of St. Louis, Mo. (Mason & Flynn, of St. Louis, Mo., 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, and Robert T. Burch, of St. Louis, Mo., on the brief), for appellee.

Before STONE, WOODROUGH, and BOOTH, Circuit Judges.

WOODROUGH, Circuit Judge.

This appeal is taken from a final decree of the District Court of the United States for the Eastern District of Missouri declining to entertain the plaintiff's bill in equity and dismissing the same on account of proceedings pending in the United States District Court of Kansas.

It appears that in February of 1936 the plaintiff acquired through the receiver of the Fire Insurance Company of Chicago, a so-called participating certificate issued in 1929 by the Federal Reserve Life Insurance Company for money advanced to it by the Insurance Investment Company. By the terms of the certificate the Federal Reserve Life Insurance Company promised to pay to the holder $300,000 and interest out of a fund to be created by the company setting aside semi-annually all of its net surplus gains in excess of $50,000. The certificate recites that the obligation of the company "is a contingent liability, not an absolute promise to pay, but is limited to its firm obligation and covenant to apply the said surplus gains to the making of the payments herein provided for and is not an obligation to be paid out of the general assets of the company other than the fund mentioned in this certificate." The certificate also provides:

"In the event of a reinsurance of the business of the Federal Reserve Life Insurance Company the reinsuring company shall be bound each six (6) months to pay the savings and profits arising out of the reinsured business (less such part of such savings and profits as may be payable under prior contracts to other persons or corporations) to the then holder or holders of this certificate or any certificate or certificates issued in lieu of this certificate until the full balance of interest and principal due thereon shall have been paid."

In May, 1936, shortly after the plaintiff acquired the certificate, the maker thereof, the Federal Reserve Life Insurance Company, was adjudicated to be insolvent by the United States District Court of Kansas and an equity receiver was appointed to take charge of and liquidate its affairs. The company had a large amount of insurance in force and the Kansas court adopted a plan of liquidation designed to secure insurance protection for those of the policyholders who would consent to a reinsurance of their policies. Instead of ordering a sale of the assets the court caused them to be vested in the Occidental Life Insurance Company, a California company authorized to do business in Kansas, upon conditions whereby that company undertook to reinsure the old policyholders to the extent which the court should find justified by the value of the assets and as determined by the court from time to time.

The plan of liquidation followed by the court contemplated that all the net profits which might arise during the period of fifteen years from the administration of the assets by the Occidental company after meeting the reinsurance obligations, and all the increment in value of the assets for the same period, should inure to the benefit of the old policyholders and creditors. After the lapse of fifteen years the remaining assets were decreed to become the property of the Occidental company. Accountings were required to be made to the court and jurisdiction was reserved in the court to enforce the ultimate disposition of the assets in accordance with its plan.

All persons having or claiming to have any interest, right, title or lien in, to, or against the assets were enjoined from asserting the same against the property in the hands of the Occidental company. And it was provided that the court retained exclusive jurisdiction of actions to construe the decree and reinsurance agreement. All persons having claims were given the right to come into the receivership proceedings for the purpose of having their claims to or interest in the property of the insolvent company established and priority thereof decreed. Provision was made by the court in its decree to satisfy the claims of all persons whom the court should find to be entitled to share or have any interest in the property, and the power was reserved to subject any of the assets transferred to the Occidental company to such claims. The decree makes disposition of the earnings and profits arising from the assets as distinct from the corpus of the fund and reserves the control and jurisdiction of the court as to each for the purpose of carrying out the decree. An accurate summary of the salient provisions of the decree of the Kansas court and of the so-called reinsurance agreement authorized and approved in, and made a part of the decree, appears in the opinion of the Circuit Court of Appeals of the Tenth Circuit in Hobbs v. Occidental Life Ins. Co., 87 F.2d 380 q.v.¹

The court undertook by several provisions of its decree and reinsurance agreement² to assure the court's full protection to the Occidental company in the possession of the assets which were turned over to it and also to accord the same protection to the creditors in such rights as the court might find them to have as against aliquot parts thereof.³

The plaintiff in this case did not appear in the proceedings in the Kansas court, but afterwards in December, 1936, it filed its bill in equity against the Occidental company in the Circuit Court of St. Louis, Missouri. It set up its participating certificate and it alleged that by reason of the proceedings had in the Federal Reserve Life Insurance Company receivership suit in the Kansas court, as such proceedings were described in the bill, the Occidental company had reinsured the business of the Federal Reserve company within the meaning of the certificate; that the Occidental company had done so with knowledge of the certificate and that it had thereby become bound as provided in said certificate to pay the savings and profits arising out of said reinsurance business to the plaintiff. Plaintiff prayed the court to decree that said reinsured business as to all savings and profits realized by the defendant stands charged with an equitable lien in favor of the plaintiff until said sum of $300,000, together with interest thereon as aforesaid be paid, and that the said defendant is the holder of said business as trustee for the benefit of this plaintiff to the extent that it, the said defendant, and all persons claiming by, through or under it, are bound to pay to this plaintiff all savings and profits realized from its business (less such part of such savings and profits as may be payable under prior contracts to other persons or corporations) until the obligation of said Participating Certificate be discharged and that the said defendant enter into an accounting with this plaintiff setting forth in detail all policies and business taken over under said reinsurance contract and all receipts and disbursements, profits and savings made by it on said business, and that it pay over to this plaintiff its portion of such profits and savings as above set forth in said Participating Certificate and that the Court grant to the plaintiff such other and further relief in the premises as to it may seem meet and proper.

The bill in equity disclosed diversity of citizenship and more than three thousand dollars involved and removal was taken to the federal court. There the defendant, the Occidental company, presented its contention among other things that the institution and prosecution of the suit by plaintiff was an unwarranted and illegal interference with the administration of the assets of the insolvent Federal Reserve Life Insurance Company by the Kansas court, and that by reason of the decree and reinsurance agreement of the Kansas court the plaintiff had no right to prosecute in the Missouri court the cause of action alleged by it. The decree of the Kansas court and reinsurance agreement attached and made a part of that decree were offered in evidence and on consideration thereof the court dismissed the plaintiff's bill and the plaintiff has taken this appeal.

There is no contention that the Kansas court did not acquire jurisdiction over all of the assets and business of the Federal Reserve company or that it lacked power to liquidate the same to satisfy the claims of creditors of the company. Nor is it contended that the power of the court was limited to effecting liquidation by making an outright sale of the assets. There were about 27,000 policyholders whose insurance approximated $30,000,000 and the company's "insurance business" (distinguished from its other assets) was a liability to the Federal Reserve company which that company could not carry and which rendered it hopelessly insolvent. Upon the adjudication of insolvency and the appointment of the receiver and the termination of the insurance policies as enforceable obligations for their face amounts,⁴ all that was left of value of the "insurance business" of the insolvent was the opportunity resulting from it for a solvent going insurance company to supply new insurance protection to the old policyholders. Only such a going insurance company could preserve the unity of the former business and supply the new insurance protection to the entire body of policyholders.

The contract embodied in the decree of the Kansas court was found to be a practical way to realize upon that opportunity for the benefit of the creditors of the insolvent. The court thereby aided the solvent going insurance company to obtain the...