LaFarge Corp. v. Com., Ins. Dept.

Citation557 Pa. 544,735 A.2d 74
PartiesLaFARGE CORP., et al., v. COMMONWEALTH of Pennsylvania, INSURANCE DEPARTMENT. Appeals of Commonwealth of Pennsylvania Insurance Department.
Decision Date20 July 1999
CourtUnited States State Supreme Court of Pennsylvania

Jerome J. Shestack, Zachary L. Grayson, Philadelphia, Paul A. Tufano, Harrisburg, for Com., Ins. Dept.

W. Edward Sell, Pittsburgh, amicus curiae — University of Pittsburgh.

Lawrence T. Hoyle, Jr., Philadelphia, for LaFarge Corp.

Floyd Abrams, Daniel B. Huyett, Reading, for American Intern. Group.

John Ellison, for AAF-McQuay, Inc.

John Osborne, for Allegheny Pittsburgh Coal Co. Thomas Corbett, Jr., Harrisburg, for Office of Atty. Gen.

Robert L. Byer, for PPG Industries, Inc.

Robert J. Sullivan, Lebanon, J. Clayton Undercofler, Paul M. Hummer, Philadelphia, for Bankers Standard Ins. Co.

Jayne M. Byrne, amicus curiae — Consumer Federation of America.

Joseph C. Tanski, amicus curiae — Nat. Conf. of Ins. Guaranty Funds.

John G. Harkins, Jr., Eleanor Morris Illoway, Philadelphia, Robert J. Sullivan, Lebanon, Harkins Cunningham, J. Clayton Undercofler, Philadelphia, for INA Financial Corp.

Lee Epstein, Philadelphia, amicus curiaeUnisys Corp.



FLAHERTY, Chief Justice.

This case requires us to interpret the General Associations Act Amendments Act of 1990 (GAAAA of 1990)1 in order to determine the type of hearing the insurance department must conduct before approving a plan for restructure and division of an insurance company. The question is whether the legislature intended, when it enacted the GAAAA of 1990 making the GAA applicable to insurance companies, to incorporate the stringent procedural due process requirements of the more general Administrative Agency Law (AAL),2 or whether the GAAAA of 1990 was intended to create an entirely distinct procedure providing for less restrictive control over reorganization of insurance companies. Appellant argues that the procedural requirements of the GAAAA of 1990 are sufficient to protect the interests of policyholders and creditors when an insurance company seeks approval of a plan to restructure and divide, and that the explicit terms create separate and distinct procedures from those in the AAL. Appellees, policyholders and creditors, argue that their interests are so great that the procedures of the AAL should be engrafted into the GAAAA of 1990, obligating the insurance department to conduct adversarial trial-type hearings prior to approval of the restructure and division of an insurance company.

The insurance department conducted the public informational hearings specified in the GAAAA of 1990, and approved a plan to reorganize CIGNA Insurance Company. Appellees sought review in Commonwealth Court, which vacated the insurance department's order approving the plan, and remanded to enable the department to hold hearings of the adversarial type required by the AAL.

CIGNA is a corporation that engages in the insurance business in Pennsylvania. Due to vast potential liabilities in connection with asbestos and environmental hazards, a national securities rating company (A.M.Best) lowered CIGNA's rating and that of its subsidiary, INA Financial. The down-grade was significant, for it adversely affected the marketability of CIGNA's stock. In response, CIGNA sought to divest itself of some of its contingent liabilities. CIGNA and INA Financial planned to create a separate operating entity to be called Century Indemnity Company. The plan was for INA to provide $500,000,000 in initial capitalization of Century, together with $800,000,000 in reinsurance coverage to enable Century to meet its obligations as to the contingent asbestos and environmental liabilities it would assume.

Pursuant to the GAA Amendments Act of 1990, 15 P.S. §§ 21101-21404, CIGNA submitted its plan of restructure and division to the commonwealth's department of insurance. Section 21205(a) states the general rule that:

Any plan of merger, consolidation, exchange, asset transfer, division or conversion of any insurance corporation, any recapitalization or voluntary dissolution of any insurance corporation or any issuance of shares by any insurance corporation in exchange for shares of another insurance company shall become effective only if approved by the Insurance department....

Section 21207 establishes the procedures for obtaining approval:

§ 21207. Administrative procedure
(a) General rule. — Every application for a certificate of authority or other approval by the Insurance Department under this division shall be made to the department in writing and shall be in such form as the procedural regulations of the department may require.
(b) Standards for approval. — A certificate of authority or other approval under this division shall be issued by order of the department only if and when the department shall find and determine that the application complies with the provisions of this division and the procedural regulations of the department thereunder.
(c) Procedure before department. — For the purpose of enabling the department to make the finding or determination required by subsection (b), the department shall afford reasonable notice and opportunity for hearing, which shall be public, and, before or after any such hearing, it may make such inquiries, audits and investigations, and may require the submission of such supplemental studies and information, as it may deem necessary or proper to enable it to reach a finding or determination. The department, in granting a certificate of authority or other approval, may impose such conditions as it may deem to be just and reasonable. In every case the department shall make a finding or determination in writing, stating whether or not the application has been approved, and, if it has been approved in part only, specifying the part which has been approved and the part which has been denied. Any holder of a certificate of authority or other approval, exercising the authority conferred thereby, shall be deemed to have waived any and all objections to the terms and conditions of such certificate or other approval.
(d) Judicial review. — Orders of the department upon an application for a certificate of authority or other approval under this section shall be subject to judicial review in the manner and within the time provided or prescribed by law.

15 P.S. § 21207.

Appellees claim that due process demands that the insurance department provide for sworn testimony, cross-examination of witnesses, a full and complete stenographic record of the proceedings, and briefing by interested parties, rights which are set forth in the AAL. Appellees do not contend that the hearings conducted in this case failed to satisfy the explicit terms of the GAAAA of 1990, but that more is required to protect the due process interests of policyholders and creditors. Thus they argue that the AAL must be incorporated in the GAAAA of 1990, as Commonwealth Court held.

Appellant gives two broad grounds for asserting that the GAAAA of 1990 should be interpreted as creating procedures distinct from those of the AAL so that the procedural elements of the AAL are not applicable to these proceedings. The first is based on statutory construction; the second is a constitutional argument.

Appellant argues that the decision of Commonwealth Court ignores well established rules governing the interpretation of statutes. First is the rule that agencies are entitled to deference in interpreting the statutes they enforce. Tool Sales & Service Co. v. Commonwealth, 536 Pa. 10, 637 A.2d 607, 613 (1993). Even more fundamental is the plain meaning rule: "When the words of a statute are clear and free from all ambiguity, the letter of it is not to be disregarded under the pretext of pursuing its spirit." 1 Pa.C.S. § 1921(b). A third rule is that the specific controls the general: "Whenever a general provision in a statute shall be in conflict with a special provision in the same or another statute, ... the special provision shall prevail and shall be construed as an exception to the general provision...." 1 Pa.C.S. § 1933. Another rule is that "when a court of last resort has construed the language used in a statute, the General Assembly in subsequent statutes on the same subject matter intends the same construction to be placed upon such language." 1 Pa.C.S. § 1922(4). Finally, and most fundamental of all, is the rule that legislative intent controls: "The object of all interpretation and construction of statutes is to ascertain and effectuate the intention of the General Assembly." 1 Pa.C.S. § 1921(a).3

Commonwealth Court recognized that the insurance commission complied with the procedures of the GAAAA of 1990. It stated: "Unlike the Administrative Agency Law, Section 207(c) [15 P.S. § 21207(c) ] does not require the production of a formal record, including a trial-type due process hearing." LaFarge Corp. v. Com., Ins. Dept., 690 A.2d 826, 832 (Pa. Cmwlth.1997). The court's rationale for circumventing the rules of statutory construction supr...

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