Maurer v. International Re-Insurance Corporation
| Decision Date | 05 June 1934 |
| Citation | 20 Del.Ch. 173,174 A. 360 |
| Court | Court of Chancery of Delaware |
| Parties | BERTHA E. MAURER, v. INTERNATIONAL RE-INSURANCE CORPORATION, a corporation created by and existing under the laws of the State of Delaware |
PETITION of Receivers of the above named defendant for an order on the Insurance Commissioner of Delaware directing him to deliver to them certain securities which were deposited with the Commissioner under the statutory provisions mentioned in the ensuing opinion. The defendant corporation is a corporation of this State. Its business was that of writing surety bonds of various types. It was decreed to be insolvent and receivers were appointed for it under the statute applicable to corporations generally (Revised Code 1915, § 3883), and not under the statute applicable particularly to insurance companies (37 Delaware Laws, c. 52 § 3, p. 171).
The Insurance Commissioner has filed an affidavit by way of answer to the petition, in which he denies that he has any authority to deliver the securities as demanded of him by the receivers.
Petition dismissed.
Ayres J. Stockly, of the firm of Hastings, Stockly & Duffy, and John Biggs, Jr., of the firm of Biggs, Biggs & Lynch, for receivers.
Robert H. Richards, Jr., Deputy Attorney General for Insurance Commissioner.
There are three deposits of securities made with the Insurance Commissioner which are now held by him and which the receivers ask that he be required to turn over to them.
One deposit was of ten thousand dollars par value of United States Treasury 3 3/4% bonds. This deposit was made on July 20, 1931, by the insolvent defendant. Another deposit was of eleven thousand dollars par value of Maplewood, New Jersey, Public Improvement 4 3/4% bonds. This deposit was made on August 22, 1930, by Public Indemnity Company, a New Jersey corporation, a company which the insolvent defendant took over and to whose business and rights it succeeded. These deposits were made under two separate statutory provisions; the first under Chapter 20, Revised Code 1915, as revised and consolidated by 37 Delaware Laws, c. 52 (Section 52), and the second under Chapter 20, § 57, Revised Code 1915 (Section 628), 34 Delaware Laws, c. 57. The statutory terms on which these deposits were made are the same in each case. Those terms are, "to be held for the benefit of the holders of the obligations of such company; said securities deposited with said Insurance Commissioner shall remain with him in trust to answer any default of such company as surety upon such bond, undertaking, recognizance or other obligation established by final judgment upon which execution may lawfully be issued against said company, said Insurance Commissioner and his successors in office being hereby directed to so receive and thereafter retain such deposit under this Chapter in trust for the purposes hereof. * * *"
There would seem to be no doubt that the "obligations of such company," referred to in the first clause of the quotation, are not its obligations generally but only its obligations of suretyship. This is evident from the phrase, "as surety," appearing in the next clause.
The third deposit was made by the insolvent defendant. It consisted of three mortgages upon real estate in the total face amount of $ 552,500. These deposits were made inter alia subject to the provisions of Chapter 20, § 72, Revised Code 1915 (Section 643). The assignments of the mortgages so state. The deposits were made June 27, 1932. Yet on that date Section 72 of Chapter 20 of the Revised Code 1915 had been repealed. The language of the assignment is "in trust for the common benefit and security of all its policy-holders and in accordance with the objects, uses, intents and purposes of the aforesaid Section 72, of Chapter 20 of the Revised Code of 1915 and for no other objects, use, intent or purpose." The assignment should not of course have made reference to a repealed section of the code. The substance of the repealed Section 72, however, has its counterpart in the revision and consolidation of the insurance laws, before referred to. 37 Delaware Laws, Chapter 52 (Pages 180 and 181), §§ 14 and 15.
A curious feature of the repealed Section 72 of the Code to which reference is made by the assignment is that while it provides that deposits may be made thereunder with the Insurance Commissioner "in trust," neither is the nature of the trust described nor are its beneficiaries designated. Yet the assignment requires that the mortgages be held in trust inter alia "in accordance with the objects, uses, intents and purposes" of the section. If we look alone to the section to which the assignment specifically refers for the "objects, uses, intents and purposes" which the trust was to subserve, it would be impossible to name them, for none are named therein or even so much as hinted at. The assignment, however, supplements the silence of the section in the matter of defining the beneficiaries of the trust by a provision which rests in a private contract stipulation, viz., by a provision that the mortgages shall be held "in trust for the common benefit and security of all its (the assignor's) policy-holders." Though this term of the trust finds no authorization in the section, it has a sufficient basis as a contract stipulation to give it enforceable validity. Casualty Ins. Co.'s Case (Boston & Albany R. Co. v. Mercantile Trust & Deposit Co. of Baltimore), 82 Md. 535, 34 A. 778, 38 L.R.A. 97. See also, Lancashire Insurance Co. v. Maxwell, 131 N.Y. 286, 30 N.E. 192. It is to be observed that when Section 72 was revised in 1931 (37 Delaware Laws, Chapter 52, §§ 14, 15), it was provided that the trust should be such as "shall be designated by the company and approved by the Commissioner." The assignment was made in 1932 and it may be that this provision, which was then the law, was in the mind of the assignor and the Commissioner. Hence the terms of the trust were designated. But confusion of thought was apparently responsible for the reference to the old repealed section. It matters not what the explanation may be of this inappropriate reference; the trust nevertheless is effective "for the common benefit and security of all its (defendant's) policy-holders."
In all three of the deposits, therefore, we have securities held by the Commissioner upon distinct trusts in favor of specially designated creditors of the defendant; and the proposition which the receivers' petition presents is that it is not only in the power of the Court of Chancery to oust the statutorily designated trustee from his office, but that it should in its discretion do so.
Is it in the power of the court to take the administration of the trusts out of the hands of the Commissioner? There is no showing of facts which justifies the conclusion that there are no policy-holders or persons having claims based on defaults upon surety bonds, etc., for whose special benefit the trusts exist. There has been no renunciation or abandonment of the trusts by the Commissioner. No ground for his removal as trustee has been shown or even alleged. The Commissioner insists that he has no authority to turn the trusts over to general receivers of the corporation for administering. So far as the present showing discloses, the case is one where general receivers desire to oust from his office a trustee created by statute and to substitute themselves in his place.
Of course, if there were no beneficiaries to be protected by the trusts, or if the Commissioner had fully administered the trust assets and a surplus remained which belonged to the corporation, the receivers as representing the interests of the creditors generally, would be entitled to the possession and control they now seek. But there is no showing that either of those situations has arisen.
It appears to be the view of the receivers that though the event of insolvency and the consequent appointment of receivers does not destroy the trusts which have attached to the deposits, yet that event does justify the ousting of the trustee designated by the statute and the substitution in his place of the receivers. That that is their view is manifest from their admission that if the securities are delivered to them they must keep them segregated from the general assets of the estate and administer them strictly in obedience to the terms of the trusts under which they were deposited. The statutes contain no provision which justifies the view of the receivers as it is stated in the first sentence of this paragraph.
I am at a loss to discover the principle which would justify the court in entering an order the effect of which would be to turn out of his office of trustee the official whom the statute designates as the one to act in that capacity, when, so far as the record discloses, the purposes to be served by the trust remain unfulfilled and no act or conduct on the part of the trustee is shown which would warrant the substitution of another in his place.
The question here presented arose in Connecticut in Cooke v. Warner, 56 Conn. 234, 14 A. 798, 800. In that case there was a deposit of securities with the State Treasurer under a statute similar in substance to the statutes before the court in this case. The trust in that case was "for the policy holders of such company." Receivers in insolvency in the Connecticut case sought to take the securities from the State Treasurer for administration and distribution according to law. The Supreme Court of Connecticut denied the right of the receivers to substitute themselves in place of the treasurer as the administrators of the securities. In the course of its opinion it said:
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