Moody v. State

• Decision Date: 13 May 1976
• Docket Number: No. 5505,5505
• Citation: 538 S.W.2d 158
• Parties: Shearn MOODY, Jr., et al., Appellants, v. STATE of Texas, Appellee.
• Court: Texas Court of Appeals

Page 158

538 S.W.2d 158

Shearn MOODY, Jr., et al., Appellants, v. STATE of Texas, Appellee.

No. 5505.

Court of Civil Appeals of Texas Waco.

May 13, 1976.

Rehearing Denied June 10, 1976.

Newman, Shook & Newman, Frank G. Newman, Dallas, for appellants.

A. R. Schwartz, Galveston, for appellee.

HALL, Justice.

The substantive issue on this appeal is whether the trial court erred after a nonjury hearing in authorizing the ancillary receiver (in Texas) of Empire Life Insurance Company of America to cooperate in the consummation of a reinsurance contract between Empire's principal receiver (in Alabama) and Protective Life Insurance Company, an Alabama Corporation. We affirm the order.

There has been much related litigation in the courts of Texas and Alabama. Some is reported in Day v. State, 489 S.W.2d 368 (Tex.Civ.App.--Austin, 1973, writ ref., n.r.e.); Empire Life Insurance Company of America v. State, 492 S.W.2d 366 (Tex.Civ.App.--Austin, 1973, no writ hist.); Moody v. Jones, 519 S.W.2d 536 (Tex.Civ.App.--Austin, 1975, no writ hist.); Moody v. State, 520 S.W.2d 452 (Tex.Civ.App.--Austin, 1975, no writ hist.); Moody v. Crook, 520 S.W.2d 958 (Tex.Civ.App.--Austin, 1975, no writ hist.); and Moody v. Moody National Bank of Galveston, 522 S.W.2d 710 (Tex.Civ.App.--Hou. 14th, 1975, writ ref., n.r.e.).

Empire Life Insurance Company of America (hereinafter 'Empire') is an Alabama corporation. Because of mergers with Texas companies, at least one-half of its policyholders are Texas residents. In June, 1972, Empire was found by the courts of Alabama to be insolvent, and was placed in receivership. Immediately thereafter, an ancillary receiver was appointed by the courts of Texas. Substantially all of Empire's physical assets are located in Texas. A major asset is an interest in the Libbie Shearn Moody Trust, which is administered by the Moody National Bank of Galveston, Texas. This interest was assigned to Empire by Shearn Moody, Jr. ('Moody'), an appellant here, who is the beneficiary of a lifetime income under the Trust. The other appellant, John Shearn Bleker, is Moody's cousin. He owns 300 shares of Empire stock and holds a $5,000 paid-up Empire life insurance policy. Protective Life Insurance Company is an old-line, conservative company with over $25,000,000 in capital and surplus, and with an excellent reputation. Its home office is in Birmingham.

As a result of Empire's insolvency, and after unsuccessful attempts to 'rehabilitate' Empire, the States of Alabama, Texas, Arkansas, Montana, Nebraska, and Oklahoma suspended Empire's operations there and proceeded with plans for reinsuring the outstanding Empire insurance policies. On June 14, 1974, the reinsurance plan in question was approved by the Circuit Court for the Tenth Judicial District of Alabama, upon the application of the domiciliary receiver. On February 26, 1975, the order challenged on this appeal was rendered authorizing the Texas ancillary receiver to consummate the reinsurance agreement.

The appellants assert a number of reasons why they say the agreement establishes unlawful discriminatory preferences among Empire's policyholders and creditors. We overrule these contentions.

The agreement is lengthy. The testimony relating to its fairness Vel non is voluminous. We need not detail either. The appellants' argument is erroneously based upon the premise that all Empire policies are alike and must therefore be treated identically in the reinsurance contract. The record shows that the policyholders come from many different companies with many different plans and policies, and it supports the determination that treating the different policyholders identically in the reinsurance plan and ignoring the various policy distinctions would result in unfair discrimination. Rather, the agreement identifies each unusual or unique group and treats it with special provisions formulated to produce equitable benefits for all. It is axiomatic that a different classification and treatment of persons based on real and substantial differences between them is not per se unlawful discrimination. See 12 Tex.Jur.2d 458, Constitutional Law, § 111. Such different treatment is often necessary, as it is here, to Avoid unlawful discrimination.

The contract in question provides in meticulous detail how the disparate groups of Empire's policyholders shall be treated. The proof shows it to be much more detailed and carefully thought out than any other reinsurance bid received by the receiver. It guarantees the payment of all death benefits under all of the policies. However, the record shows that Empire's assets are worth millions of dollars less than the reserve liabilities of the policies Protective assumes under the plan; that Empire is in fact impaired in excess of $10 million and is insolvent in excess of $6 million. To off-set this multi-million dollar gap the reinsurance agreement...