Metropolitan Life Ins. Co. v. Board of Directors of Wisconsin Ins. Sec. Fund
| Decision Date | 07 September 1983 |
| Docket Number | No. 83-C-604-C.,83-C-604-C. |
| Citation | 572 F. Supp. 460 |
| Parties | METROPOLITAN LIFE INSURANCE COMPANY; the Equitable Life Assurance Society of the United States; the Mutual Benefit Life Insurance Company; Provident Life and Accident Insurance Company; Pacific Mutual Life Insurance Company; and Colonial Penn Franklin Insurance Company, Plaintiffs, v. BOARD OF DIRECTORS OF WISCONSIN INSURANCE SECURITY FUND; John Cleary, James Altman, Donald C. Ames, David Diercks, Thomas P. Fox, George A. Hardy, Stanley Hoffert, Charles P. Smith, James Stout, James Thomas, and Michael J. Tufts, individually and as members of the Board of Directors of Wisconsin Insurance Security Fund; and Thomas P. Fox, as Commissioner of Insurance of the State of Wisconsin, Defendants. |
| Court | U.S. District Court — Western District of Wisconsin |
Robert Horowitz, Madison, Wis., for plaintiffs.
Gerald S. Wilcox, Asst. Atty. Gen., Madison, Wis., for defendant Fox.
Christopher Wilcox, Madison, Wis., for remaining defendants.
This civil action for declaratory and injunctive relief is before the court on plaintiffs' motion for a preliminary injunction, and on defendants' motion to dismiss or to stay.
Plaintiff insurance companies are challenging the constitutionality of certain provisions of the Wisconsin statutes governing the operation of the insurance security fund established by the Wisconsin legislature to provide a "mechanism for protecting insureds from excessive delay and loss in the event of liquidation of insurers." Wis. Stats. § 646.01(2)(a). Plaintiffs challenge the manner in which they have been assessed for the liquidation of the Reliable Life and Casualty Company and the manner in which the Wisconsin Insurance Security Fund Board has been paying the loss claims of Reliable's policyholders. They also attack the statutory requirement that payment of the assessments must be made before an assessed company can perfect an appeal under Wis.Stats. § 646.51(6). Plaintiffs contend that defendants have subjected them to the deprivation of their rights to due process under the Fourteenth Amendment.
Before plaintiffs moved for a preliminary injunction, defendants moved to dismiss or to stay, contending that the court should abstain from exercising jurisdiction on the ground, among others, that it would be disruptive of the State of Wisconsin's extensive effort in enforcing a complex and comprehensive administrative and judicial scheme regulating the insolvency of a domestic insurer. An evidentiary hearing on both motions was held on August 1 and 2, 1983. From the evidence adduced at that hearing and from the affidavits and depositions on file, I make the following findings of fact, for the purpose only of deciding the pending motions.
Plaintiffs are insurance companies, each incorporated under the laws of, and having their principal places of business in, states other than Wisconsin. Each is licensed to do business in Wisconsin and each has done substantial insurance business in this state.
The defendant Board of Directors of the Wisconsin Insurance Security Fund is a board established by and existing under Wis.Stats. § 646.12, with capacity to sue and be sued and with the legal obligation of administering the Wisconsin Insurance Security Fund, a fund established by Wis. Stats. § 646.11.
Defendants Cleary, Altman, Ames, Diercks, Hardy, Hoffert, Smith, Stout, Thomas, and Tufts are members of the Wisconsin Insurance Security Fund Board. Each is a citizen of the State of Wisconsin, except Ames, who is a citizen of the State of Wisconsin or the State of Illinois.
Defendant Fox is a citizen of the State of Wisconsin. He is and has been at all relevant times since March 1, 1983, Commissioner of Insurance of the State of Wisconsin. As Commissioner of Insurance, he has the duty under Wis.Stats. § 601.41(1) of administering and enforcing all provisions of Wis.Stats. Chapter 646.
Reliable Life and Casualty Company was a Wisconsin corporation incorporated as a stock insurance company. It was licensed to do business in, and did business in, Wisconsin, thirty-four other states, and the District of Columbia.
On August 31, 1981, the Office of the Commissioner of Insurance for the State of Wisconsin began rehabilitation-liquidation proceedings with respect to Reliable in the Circuit Court of Dane County, Wisconsin. The case was assigned to the Honorable William C. Sachtjen, who has presided since March, 1975 as liquidation judge on various matters under Wis.Stats. Chapter 645.
The liquidation of Reliable is the first proceeding of its kind to have been brought under the present Wisconsin statutes, which were revised substantially in 1979. The sections of Wis.Stats. Chapters 645 and 646 which are challenged by plaintiffs have never been considered or construed by any Wisconsin appellate court. This liquidation is also the first in which insurance coverage has been continued. In this instance, the decision was made by the members of the Wisconsin Insurance Security Fund Board to provide continuing insurance coverage to persons who had bought guaranteed renewable disability insurance policies from Reliable, including those former Reliable policyholders whose policies had lapsed, if they reinstated their lapsed policies within thirty days of the notification of their right to reinstate.
To provide money to pay the loss claims of policyholders of Reliable and to continue insurance coverage to those policyholders, the Wisconsin Insurance Security Fund Board has imposed assessments pursuant to Wis.Stats. § 646.51 on the plaintiffs and other insurers licensed to do disability insurance business in Wisconsin. At a meeting held on December 4, 1981, the Wisconsin Insurance Security Fund Board determined the amount of assessment necessary to fund the continuing coverage. The Board ordered that the first installment of the assessment be in the total amount of $7,000,000. Each of the plaintiffs made timely payment to the Wisconsin Insurance Security Fund of its assessment.
After the Board determined the total amount of each of the two assessments necessary to operate, it calculated the assessments against each insurer using the two-step procedure specified by Wis.Stats. § 646.51(3)(b). In the first step, the apportionment among the states was made as follows: the assessments to provide protection under Wis.Stats. § 646.35 were made separately for each state in which Reliable was authorized to transact business. The assessment allocable to each state was in the proportion that the premiums Reliable received on business in each state on disability policies bore to the premiums it received in all such states. In the second step, the amount apportioned to each state was allocated as follows: assessments against the subject insurers were in the proportion that the premiums received on business in each state by each assessed insurer on the disability policies bore to such premiums received on such business in such state by all assessed insurers.
The result of this two-step procedure is that the plaintiffs and other assessed insurers have been assessed on the basis of the premium income they have received in Wisconsin and in states other than Wisconsin, for the purpose of paying general administrative expenses of the Wisconsin Insurance Security Fund attributable to the Reliable liquidation and the loss claims, under Wis. Stats. § 646.31(2)(b), of Reliable policyholders who reside in Wisconsin and in states other than Wisconsin.
With the exception of certain calculations designed to eliminate trivial transactions or allocations, the Board of Directors of the Wisconsin Insurance Security Fund assessed the plaintiffs on their business in Wisconsin and the twenty-one other states in which Reliable did most of its business.
In calculating the assessments, the Wisconsin Insurance Security Fund Board did not ignore the business that Reliable was doing in states other than the twenty-two states in which the Board made assessments. The Board added that business to Reliable's Wisconsin business and thereby increased the assessed insurers' Wisconsin assessments. After performing the calculations described above, the results in isolated instances showed assessments by state or by company to be of such a small size that the resulting allocations or transactions were trivial, and accordingly the Board allocated such portion of the assessment to the State of Wisconsin.
The assessments of plaintiffs were as follows:
Other
Wisconsin States Total
Metropolitan $38,584 $151,098 $189,682
Equitable 33,590 179,846 213,436
Mutual Benefit 8,818 50,548 59,366
Provident 7,525 62,458 69,983
Pacific Mutual 29,691 58,324 61,285
Colonial Penn 14,400 49,015 63,415
Each of the plaintiffs paid its assessment.
On May 31, 1983, the Board mailed to the plaintiffs and the other insurers licensed to do disability insurance business in the state of Wisconsin its notice of the second installment due on the assessment in the Reliable liquidation proceedings, in the amount of $3,500,000. The Board assessed the plaintiffs as follows:
Other
Wisconsin States Total
Metropolitan $19,191 $75,554 $ 94,846
Equitable 16,795 89,922 106,717
Mutual Benefit $4,409 $25,275 $ 29,684
Provident 3,763 31,230 34,993
Pacific Mutual 1,481 29,159 30,640
Colonial Penn 7,200 24,509 31,709
Each of the plaintiffs paid its assessment.
Of the $10,500,000 that the Board assessed in 1982 and 1983 in the Reliable liquidation, only $2,714,765 (25.85%) was based on the insurers' business in Wisconsin. The balance of $7,785,235 (74.15%) was based on their business in other states.
Of the $20,744,029 that the Board paid out in loss claims from October 20, 1981 to September 30, 1982, only...
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