Knickerbocker Agency, Inc. v. Holz

• Decision Date: 03 April 1958
• Citation: 149 N.E.2d 885,4 N.Y.2d 245,173 N.Y.S.2d 602
• Parties: , 149 N.E.2d 885 In the Matter of the Arbitration between KNICKERBOCKER AGENCY, Inc., et al., Appellants, and Leffert HOLZ, Superintendent of Insurance of the State of New York, as Liquidator of the Preferred Accident Insurance Company of New York, Respondent
• Court: New York Court of Appeals Court of Appeals

Page 602

173 N.Y.S.2d 602

4 N.Y.2d 245, 149 N.E.2d 885

In the Matter of the Arbitration between KNICKERBOCKER AGENCY, Inc., et al., Appellants, and Leffert HOLZ Superintendent of Insurance of the State of New York, as Liquidator of the Preferred Accident Insurance Company of New York, Respondent

Court of Appeals of New York.

April 3, 1958.

Maxwell H. Goldstein, New York City, for appellants.

Irvin Waldman and Alfred C. Bennett, New York City, for respondent.

CONWAY, Chief Judge.

The question here to be determined is whether petitioners, residents of this State and alleged debtors of a domestic insurance company in liquidation, may insist on having their dispute with the company determined by arbitration as provided for in a contract between the company and petitioners, or whether the Supreme Court is the exclusive forum for the resolution of the controversy.

Prior to April 30, 1951 the Preferred Accident Insurance Company was a casualty insurance corporation organized under the Insurance Law of the State of New York. On January 26, 1950 Preferred entered into a written agreement with the petitioners under which they were appointed insurance agents of Preferred and their compensation fixed at certain rates of commission therein specified, deductible by the agents at the time of the remission of premiums for policies written. It was agreed therein that 'the agent shall refund ratably to the Company, on business heretofore or hereafter written, the fee and commissions on canceled liability and on reductions in premiums at the same rate which such fee or commissions were originally retained'.

The contract also provided that 'All controversies and disputes arising out of or relating to this agreement or the subject matter thereof shall be submitted to arbitration'.

On April 30, 1951, by order of the Supreme Court, New York County, in a proceeding instituted by the Superintendent of Insurance of the State of New York pursuant to article XVI of the Insurance Law, Preferred was placed in liquidation. Under the order of liquidation, the Superintendent of Insurance was 'authorized and directed forthwith to take possession of the property and liquidate the business and affairs' of Preferred; the Superintendent of Insurance was 'vested with title to all of the property, contracts and rights of action of said Company' ; October 31, 1951 was fixed as the last day for the filing of claims; all policies and contracts were cancelled; the further transaction of business was enjoined and restrained; 'the officers, directors, stockholders, policyholders, servants, agents, employees and creditors of (Preferred were) * * * enjoined and restrained from bringing or further prosecuting any action at law, suit in equity, special or other proceeding against the said Company or its estate, or the Superintendent of Insurance * * * as Liquidator thereof'; and the corporate charter of Preferred was forfeited and annulled, and the corporation was dissolved.

On June 22, 1951, by order of the same court, Preferred was adjudged to be insolvent as of the date of the order of liquidation, namely, April 30, 1951.

On or about May 18, 1956 the Superintendent of Insurance, as liquidator of Preferred, instituted an action in the Supreme Court, New York County, against the petitioners to recover the sum of $5,818,35, that being, allegedly, the unearned commissions required to be paid by petitioners on cancelled liability under the agency contract of January 26, 1950. Petitioners interposed an answer containing a defense that the controversy should be submitted to arbitration in pursuance of the contract. Subsequently, petitioners instituted a special proceeding requiring the Superintendent of Insurance, as liquidator of Preferred, to show cause why he should not be compelled to submit to arbitration, and why the action instituted by him against the petitioners should not be stayed until such arbitration was had. By way of defense, the Superintendent of Insurance alleged that the order of liquidation enjoined petitioners from bringing such a proceeding.

Special Term directed the Superintendent to proceed to arbitration and stayed his action against petitioners until such arbitration be had. The Appellate Division has reversed upon the ground that the Legislature vested exclusive jurisdiction over all claims involving an insolvent insurer in one body the Supreme Court.

On this appeal, petitioners contend that the Superintendent of Insurance, in the prosecution of a claim against an alleged debtor of an insurance company in liquidation, as distinguished from the prosecution of a claim by a creditor of an insurance company in liquidation against the Superintendent of Insurance stands in the shoes of the insurance company and, therefore, may not disregard a contractual provision requiring the submission of any controversy to arbitration. The basis for petitioners' argument is that, while, with respect to the prosecution of a claim by a creditor against an insurance company in liquidation, the Legislature has, through article XVI of the Insurance Law, conferred exclusive jurisdiction upon the Supreme Court, there is no such exclusivity of jurisdiction where the Superintendent of Insurance, as liquidator, prosecutes a claim against an alleged debtor of the insurance company in liquidation.

We find no merit in petitioners' contention.

Article XVI of the Insurance Law ( §§ 510-546), insofar as it relates to the liquidation of insolvent insurance companies, is intended to and does furnish a 'comprehensive, economical, and efficient method for the winding up of the affairs' of such insurance companies by the Superintendent of Insurance (Motlow v. Southern Holding & Securities Corp., 8 Cir., 95 F.2d 721, 724, 119 A.L.R. 1331). Those provisions of the Insurance Law 'are exclusive in their operation and furnish a complete procedure for the protection of the rights of all parties interested' (Matter of Lawyers Title & Guar. Co., 254 App.Div. 491, 492, 5 N.Y.S.2d 484, 486). When an insurance company is, or may become insolvent, the Superintendent of Insurance may, under article XVI, apply to the Supreme Court for an order of liquidation (Insurance Law, §§ 513, 526). Under the order of liquidation, the Superintendent of Insurance is vested by operation of law 'with the title to all of the property, contracts and rights of action' of the defunct insurance company (Insurance Law, § 514). The Supreme Court, in the liquidation proceeding, must take cognizance of the interests of the policyholders, creditors, stockholders, and the public (Insurance Law, § 526), and it may issue such orders 'as may be deemed necessary to prevent interference with the superintendent or the proceeding, or waste of the assets of the insurer' (Insurance Law, § 528). Clearly does the plan emerge that the Supreme Court, with the agency of the Superintendent of Insurance, was intended to have exclusive jurisdiction of claims both for and against an insurance company in liquidation.

It is quite true that Preferred and the petitioners had a right to incorporate, as they did, a provision in their contract requiring the submission of any controversy to arbitration. That is, if they desired arbitration as a 'prompt, economical and adequate solution' to any controversy that might arise, and were willing to accept 'less certainty of legally correct adjustment', they were free to do so (Wilko v. Swan, 346 U.S. 427, 438, 74 S.Ct. 182, 188, 98 .l.Ed. 168). As between Preferred and petitioners, arbitration could have been compelled. With the onset of Preferred's insolvency and liquidation, however, the rights of creditors, indeed, the interests of policyholders, stockholders and the public, intervened (cf. Bank of United States v. Braveman, 259 N.Y. 65, 70, 181 N.E. 50, 51, 82 A.L.R. 658). It was at that time that the provisions of article XVI of the Insurance Law came into operation, and it was at that time that the contractual provision relating to arbitration became of no effect (cf. O'Neil v. Burnett, 263 Pa. 216, 220, 106 A. 246). Certainly, such a consequence should have been envisaged by petitioners for, when petitioners entered into their contract with Preferred, they must be deemed to have done so with knowledge of the provisions of article XVI, and, hence, those provisions 'must be deemed to have permeated the agreement, and constituted elements of the obligation' (People v. Globe Mut. Life Ins. Co., 91 N.Y. 174, 179).

While it is true that the Superintendent of Insurance, as statutory liquidator, 'for all practical purposes takes the place of the insolvent insurer' (Bohlinger v. Zanger, 306 N.Y. 228, 234, 117 N.E.2d 338, 341), and would thus seem to be subject to the contractual provision requiring arbitration, as Preferred would have been, it may nevertheless be fairly said that the Legislature never contemplated turning over liquidation proceedings, and incidental actions and proceedings, to private arbitrators to administer. In the words of Judge Van Voorhis, when writing for the Appellate Division in Matter of Kingswood Management Corp. (Salzman) 272 App.Div. 328, 331, 70 N.Y.S.2d 692, 694, which involved a suit under the Emergency Price Control Act; 'It was not intended without express statutory authorization that arbitrators, who are private individuals, who are subject to selection by the parties themselves * * * and who are charged with the execution of no public trust, should determine these matters.' (Emphasis supplied.) Further, by way of analogy, the jurisdiction of the Federal District Courts in bankruptcy is exclusive and cannot be surrendered except that arbitration is permissible in certain instances only, however, because express statutory authorization therefor is found in the Bankruptcy Act itself (U. S. Code Annotated, tit. 11, § 49).

It is the Supreme Court, upon the institution of suit by the Superintendent of Insurance (Insurance Law, §...