Morris v. Investment Life Ins. Co.

Decision Date30 June 1971
Docket NumberNo. 69-754,69-754
Citation56 O.O.2d 14,272 N.E.2d 105,27 Ohio St.2d 26
Parties, 56 O.O.2d 14 MORRIS, Supt. of Insurance, v. INVESTMENT LIFE INS. CO., Appellee, Silvas et al., Appellants.
CourtOhio Supreme Court

George, Greek, King, McMahon & McConnaughey, Darold I. Greek, and David A. Johnston, and Kiehner Johnson, Columbus, for appellee Investment Life Insurance Co. of America.

Knepper, White, Richards & Miller, William E. Knepper, and William L. Clark, Columbus, for appellants.

PER CURIAM.

The appellants contend that the contract of January 9, 1963, was void ab initio because the parties failed to obtain the prior approval of the merger commission provided for in R.C. 3907.11 R.C. 3907.10 provides, in pertinent part:

'* * * When any domestic stock company referred to in Section 3907.09 of the Revised Code proposes to merge or consolidate with any other company, it shall present its petition to the superintendent of insurance, setting forth the terms of the proposed merger or consolidation and praying for its approval. The superintendent thereupon shall issue an order of notice requiring that notice of the pendency of such petition and the time and place at which it will be heard be given to the shareholders, of the company filing the petition, by such means and at such times as are required for the giving of the notice of a metting of shareholders under Section 1701.41 of the Revised Code.'

R.C. 3907.11 provides that:

'The Governor or, if he cannot act, some competent resident of the state to be appointed by him, the attorney general, and the superintendent of insurance shall constitute a commission to hear and determine any petition presented under Section 3907.10 of the Revised Code. At the time and place fixed in the notice given by the superintendent, or at such time and place as is fixed by adjournment, the commission shall proceed with the hearing, and may make such examination into the affairs and condition of the company as it considers proper. The superintendent may summon and compel the attendance and testimony of witnesses and the production of books and papers before the commission. Any policyholder or stockholder of the company may appear and he heard in reference to such petition.

'If satisfied that the interests of the policyholders of such company are properly protected, and that no reasonable objection exists thereto, the commission may approve and authorize the proposed merger or consolidation. Such merger or consolidation shall only be approved by the consent of all the members of the commission, whose duty it is to guard the interests of the policyholders of any such company proposing to merge or consolidate.'

If the contract at bar is not one for consolidation or merger, the above sections do not pertain to this cause.

The instrument was title 'Reinsurance Agreement,' but the title parties select for their contract is not conclusive evidence of what that agreement may actually be in practical operation. It is the provisions of the contract, construed together, that are of main importance. Ohio Valley Advertising Corp. v. Linzell (1957), 107 Ohio App. 351, 152 N.E.2d 380, 382; Farris v. Glen Alden Corp. (1958), 393 Pa. 427, 143 A.2d 25; Stephenson Finance Co. v. South Carolina Tax Commission (1963), 242 S.C. 98, 130 S.E.2d 72, 76, citing Fidanque v. American Maracaibo Co. (1952), 33 Del.Ch. 262, 92 A.2d 311; Rath v. Rath Packing Co. (1965), 257 Iowa 1277, 139 N.W.2d 410; 19 C.J.S. Corporations § 1604, p. 1367.

It is settled law that a merger involves the absorption of one company by another, the latter retaining its own name and identity, and acquiring the assets, liabilities, franchises and powers of the former. Of necessity, the absorbed company ceases to exist as a separate business entity. State ex rel. Safeguard Ins. Co. v. Vorys (1960), 171 Ohio St. 109, 167 N.E.2d 910; Rath v. Rath Packing Co., supra; Alabama Power Co. v. McNinch (1938), 68 App.D.C. 132, 94 F.2d 601; Ahles Realty Corp. v. Commr. of Internal Revenue (1934), 71 F.2d 150, cert. den., Ahles Realty Corp. v. Helvering, 293 U.S. 611, 55 S.Ct. 141, 79 L.Ed. 701; Appelstein v. United Board and Carton Corp. (1960), 60 N.J.Super. 333, 159 A.2d 146, affd., 33 N.J. 72, 161 A.2d 474; Fletcher Cyc. Corp., Section 7041; 13 Ohio Jurisprudence 2d 266, Section 803; 18 American Jurisprudence 2d 874, Section 1492.

In the contract here in question, there was proposed: (1) a transfer of all of the assets of American to ILICA; (2) an assumption by ILICA of American's liabilities; (3) the dissolution of American; and (4) the continued existence of ILICA as the absorbing company. Every factor essential to a merger appears in this plan. It is of little consequence by what name the act is characterized, or by what steps the result is to be reached, or that one of the steps may take the shape of reinsurance or namagement. As noted by Judge Troop in his concurring opinion in the Court of Appeals:

'* * * Merger entails the consolidation of both assets and liabilities. In the instant case, ILICA took over the assets of ALIA, and it matters not that an interim device was incorporated in the contract by which the Ohio Superintendent of Insurance took over the managment of assets and the gradual retirement, or reissuance, of policy liabilities, the ultimate purpose of the contract was merger. * * *

'* * *

'It must not be overlooked that the agreement puts title to the assets in ILICA 'as the absolute owner thereof,' and requires that notice be mailed to each ALIA policyholder 'whose policy is assumed by ILICA.' The contract is a contract of merger. In the light of statutory language, there is no such thing as a 'hybrid' contract. It is either one or the other, but here it is clearly a merger contract.' Morris v. Investment Life Ins. Co., 18 Ohio App.2d 211, 232, 248 N.E.2d 216, 230.

Appellants contend that since this is a merger contract, the approval of the merger commission should have been sought and obtained at the outset, and that the failure to do so now voids this contract ab initio. Appellants view the words 'proposes to merge,' in R.C. 3907.10, as applicable only to a very early time in the life of the agreement.

We find the case of Sachs v. Ohio Nat. Life Ins. Co. (7 Cir. 1940), 116 F.2d 113, of little help in this matter. In addition to the fact that the equities there are easily distinguishable from those of the instant case, there is no evidence here, as there was in Sachs of a longstanding administrative practice of disregarding the formal procedural requirements in the statute there in question.

However, an examination of statutes in other jurisdictions is most helpful in interpreting the word 'proposed' as it is employed in R.C. 3907.10.

As to the precise point in time at which state approval must be obtained in the chronology of merger procedures, the laws of some states are not specific. A typical statute merely provides that an insurer may merge 'with the prior approval' of the commissioner. Conn.Cen.Stat.Ann. S 38-42 (Supp. 1963). The laws of other states generally provide that no merger shall be effectuated unless 'in advance' thereof the merger plan and agreement have been filed with and approved by the designated state authority, without expressly indicating when the plan or agreement has to be submitted for state scrutiny. 1

In at least six states, however, the statutes specifically require that the approval of the state must be obtained before the merger agreement entered into by the board of directors is submitted to the policyholders and/or the stockholders. 2

Other states expressly provide that the merger agreement made by the board of directors must first be adopted by the policyholders and stockholders before submission to the state authority for approval. 3

In three states, Michigan, New Jersey and California, mergers are subject to two approvals: (a) a tentative approval, before the policyholders' and stockholders' consent to the merger agreement, and (b) a final approval after the policyholders or stockholders have so consented. 4

Finally, there is a group of states in which the Insurance Authority is empowered to direct or authorize changes or modifications in the merger agreement. It appears that subsequent reratification by the stockholders or policyholders must then be secured and the agreement resubmitted to the Authority. 5

It is clear from the diverse nature of these statutes that many types of regulatory schemes are and were readily available as models for the enactment or amendment of our insurance laws.

The precise point in time at which state approval of a merger must be sought and obtained varies widely among our sister states. By comparison to these other statutes, R.C. 3907.10 clearly places Ohio in the group of states which are not specific in their merger approval time, and it is reasonable to conclude that the General Assembly intended it to be so. Thus, the failure of the instant parties to obtain the approval and authorization of the merger commission at the initial stage of their plan does not necessarily constitute noncompliance with the terms of this statute. As stated by the Court of Appeals, '* * * the logic of the situation impels us to conclude that such commission approval is not necessarily required at the beginning of the contract but is mandatory when the merger phase must be approved. For the commission provided by statutes to foresee all the trials, vicissitudes, and fortunes of both merging companies for an indefinite future period encompassing the management phase would appear to be impossible. Consent and approval so given would be highly hazardous. But if approval be timed to the initiation of the second phase of the contract-the actual merger-then, the full scope of protection would be afforded. The immediate situation of the respective companies would be subject to more accurate prognosis at a time when the rights of the policyholders would be facing a...

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