Kaiser v. First Hawaiian Bank
| Decision Date | 15 August 1997 |
| Docket Number | No. CV 96-00310 DAE.,CV 96-00310 DAE. |
| Citation | 30 F.Supp.2d 1255 |
| Parties | Linda S. KAISER, Pennsylvania Insurance Commissioner and Statutory Rehabilitator of National American Life Insurance Company of Pennsylvania (In Rehabilitation), Plaintiff, v. FIRST HAWAIIAN BANK, a federal banking institution, Defendant. |
| Court | Hawaii Supreme Court |
Robert Carson Godbey, Gilbert Jackson & Godbey, Honolulu, HI, for Linda S. Kaiser, National Life Ins. Co. of Pennsylvania.
Patsy H. Kirio, Watanabe Ing & Kawashima, Honolulu, HI, for First Hawaiian Bank.
ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT AS TO COUNTS 2 THROUGH 10 AND DENYING WITHOUT PREJUDICE DEFENDANT'S MOTION TO DISMISS COUNT 1
The court heard Defendant's Motion for Summary Judgment on June 30, 1997. Robert Godbey, Esq., and Jess Griffiths, Esq., represented Plaintiff Linda Kaiser, Pennsylvania Insurance Commissioner and Statutory Rehabilitator of National American Life Insurance Company of Pennsylvania; John Komeiji, Esq., and Patsy Kirio, Esq., represented Defendant First Hawaiian Bank. After reviewing the motion and the supporting and opposing memoranda, the court GRANTS Defendant's Motion for Summary Judgment as to Counts 2 through 10 and DENIES without prejudice Defendant's Motion to Dismiss Count 1.
In December 1993, National American Life Insurance Company of Pennsylvania ("NALICO") and Investors Equity Life Insurance Company of Hawaii ("Investors Equity") entered into a Coinsurance Agreement. Under this agreement, Investors Equity agreed to indemnify NALICO for one hundred percent of the benefits provided by each coinsured policy. In return, NALICO ceded to Investors Equity annuity contracts with reserves in the amount of approximately $8.5 million dollars and transferred to Investors Equity cash in an amount equal to the reserves. Investors Equity was to maintain the assets in a Custodial Account with a fair market value equal to the amount ceded by NALICO, and any shortfall in the Custodial Account was to be funded by Investors Equity. See Coinsurance Agreement, attached as exh. B, Plaintiff's Concise Statement of Facts ("S/F").
The Agreement additionally provided that for the protection of NALICO and Investors Equity, a Custodian would hold assets equal to the net policy reserves on the coinsured policies. Except for withdrawals for the payment of benefits, no withdrawals from the assets held subject to the Custodial Agreement would be made without the prior written approval of NALICO; however, assets held subject to the Custodial Agreement would be invested and reinvested at the sole discretion of Investors Equity so long as each asset was a permissible asset for investment by insurance companies at the value prescribed according to the insurance laws of Pennsylvania, Hawaii, and California. The Coinsurance Agreement further provided certain restrictions on the ability of Investors Equity to select securities, and specifically provided the mechanism by which NALICO could object to certain securities. See id. ¶ 1.3.
The parties then selected Defendant First Hawaiian Bank ("Defendant" or "First Hawaiian Bank") to act as custodian. A Custodial Agreement was entered into by all three parties in December 1993, "for the purpose of securing the payment by the Reinsurer of its obligations (the "Obligations"), now or hereafter existing, under the Reinsurance Agreement." Custodial Agreement, attached as exh. C, Plaintiff's S/F ("Custodial Agreement"). The Custodial Agreement contains the following relevant provisions:1
§ 2: Establishment of Custodial Account; Deposit of Securities; Grant and Perfection of Security Interest in Securities on Deposit. (a): The Custodian shall establish and, at all times hereafter until this Agreement shall be terminated pursuant to § 10 hereof, shall maintain an account which shall be entitled "National American Life Insurance Company of Pennsylvania Company/Investors Equity Life Insurance Company of Hawaii, LTD. Custodial Account" (the "Custodial Account"). The Custodial Account shall be established and maintained by the Custodian at its principal corporate trust office in Honolulu, Hawaii. Subject to § 5 hereof, all Securities deposited and held in the Custodial Account shall be held by the Custodian for the benefit of the Company.
(b): The Reinsurer shall acquire securities pursuant to the Investment Parameters and shall cause them to be deposited in the Custodial Account. Such Securities shall have an aggregate Fair Market Value at least equal to the Reinsurer's outstanding reserves on the Contracts as of the end of the calendar quarter immediately preceding the date hereof. The Reinsurer shall, within 15 days of the end of each calendar quarter until this Agreement is terminated pursuant to § 10 hereof, deposit or cause to be deposited in the Custodial Account any additional Securities necessary to cause the aggregate Fair Market Value of Securities on deposit in the Custodial Account to be at least equal to the Reinsurer's outstanding reserves on the Contracts as of the end of such calendar quarter. The Custodian shall have no responsibility to determine the Fair Market Value of Securities on deposit in the Custodial Account, whether the Reinsurer has deposited an adequate amount of Securities therein, or whether the Securities qualify under the meaning of the investment parameters.
(c): The Reinsurer hereby grants to the Company a security interest in and on all if [sic] its right, title and interest in and to all Securities now or hereafter on deposit in the Custodial Account to secure the payment of all Obligations under the Reinsurance Agreement, which security interest shall continue in full force and effect until this Agreement is terminated pursuant to § 10 hereof.
(d): The Company hereby constitutes and appoints the Custodian its agent for the purpose of perfecting, by possession, the Company's security interest in the Securities on deposit in the Custodial Account.
(e): The Custodian makes no representation or warranty as to the legality, validity or enforceability of the security interest in the Securities on deposit in the Custodial Account granted or perfected, in connection with this Agreement, and, except for holding such Securities in accordance with the terms and conditions of this Agreement, shall have no duty hereunder in connection with the granting or perfection of such security interest....
§ 3: Substitution of Securities: Investments: (a) The Reinsurer may substitute any Securities for those Securities on deposit in the Custodial Account if such substitute Securities have a Fair Market Value, as of the date of substitution, at least equal to the Fair Market Value of the Securities for which they are to be substituted, and further meet the Investment Parameters. The Custodian shall have no responsibility to determine whether substitute Securities have such a Fair Market Value or whether they meet the investment parameters.
(b) Upon the written order and direction of the Reinsurer, the Custodian shall invest any monies on deposit in the Custodial Account in Securities. Any such investments shall be deposited in the Custodial Account and, subject to § 5 hereof, shall be held by the Custodian in trust for the benefit of the Company for Obligations under the Reinsurance Agreement.
§ 4: Payments to the Company: If the Reinsurer shall have defaulted in the payment of any of its Obligations, Company shall give written notice to Reinsurer of the specific nature and, if applicable, amount of default. Reinsurer shall have thirty (30) days after receipt of such notice to remedy or cure any default not otherwise resolved by informal means. If any default is not remedied, cured, or otherwise resolved within said thirty (30) days, the Company shall give written notice thereof to the Custodian (with copy to the Reinsurer). Such notice shall, in addition, specify the amount of Obligations due the Company and shall instruct the Custodian to sell and reduce to cash the Securities specified therein and to pay over to the Company the proceeds thereof in the amount equal to such Obligations. Promptly after receipt of such notice, the Custodian shall sell and reduce to cash the Securities specified therein and pay over to the Company the proceeds thereof in the amount equal to such Obligations, as specified in such notice. Any such proceeds in excess of such amount shall not be paid over to the Company but shall be retained by the Custodian in the Custodial Account. § 5: Payments to Reinsurer: (a) If the Reinsurer shall notify the Company in writing that the Fair Market Value of the Securities on deposit in the Custodial Account exceeds the Fair Market Value of Securities required to be maintained in the Custodial Account by the Reinsurer pursuant to § 2 hereof, the Company shall promptly thereafter instruct the Custodian in writing to release to the Reinsurer an amount of Securities (which Securities shall be specified in such instructions) having a Fair Market Value not greater than the amount of such excess. The Custodian shall release to the Reinsurer the Securities specified in such instructions promptly after receipt from the Company thereof. ...
(c) The Reinsurer shall be entitled to receive all payments of interest and dividends with respect to the Securities on deposit in the Custodial Account. Distributions of such income shall occur pursuant to § 5(a).
§ 7: Rights and Duties of the Custodian: (a) The Custodian accepts the trusts hereby created and agrees to perform the duties herein required of it and to exercise the rights, powers, and privileges herein conferred upon it, upon and subject to the terms and conditions hereof, and agrees to receive and disburse all assets actually received by it hereunder, but only upon the terms of this Agreement. The Custodian shall not be answerable or accountable except for its...
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