North Carolina Reinsurance Facility v. North Carolina Ins. Guar. Ass'n

• Decision Date: 03 April 1984
• Docket Number: Nos. 8310SC41,8310SC591,s. 8310SC41
• Citation: 313 S.E.2d 253,67 N.C.App. 359
• Court: North Carolina Court of Appeals
• Parties: NORTH CAROLINA REINSURANCE FACILITY v. NORTH CAROLINA INSURANCE GUARANTY ASSOCIATION, John Randolph Ingram, and Thomas J. Caldarone, as Domiciliary Receiver of American Reserve Insurance Company. STATE of North Carolina, on Relation of John Randolph INGRAM, Commissioner of Insurance of North Carolina, Plaintiff, v. AMERICAN RESERVE INSURANCE COMPANY, Defendant, and NORTH CAROLINA INSURANCE GUARANTY ASSOCIATION, Third-Party Plaintiff, v. Thomas J. CALDARONE, as Commissioner of Insurance of the State of Rhode Island and as Domiciliary Receiver of American Reserve Insurance Company, Third-Party Defendant.

Page 253

313 S.E.2d 253

67 N.C.App. 359

NORTH CAROLINA REINSURANCE FACILITY v. NORTH CAROLINA INSURANCE GUARANTY ASSOCIATION, John Randolph

Ingram, and Thomas J. Caldarone, as Domiciliary

Receiver of American Reserve Insurance Company.

STATE of North Carolina, on Relation of John Randolph

INGRAM, Commissioner of Insurance of North

Carolina, Plaintiff, v. AMERICAN RESERVE INSURANCE COMPANY, Defendant, and NORTH CAROLINA INSURANCE GUARANTY ASSOCIATION, Third-Party Plaintiff, v. Thomas J. CALDARONE, as Commissioner of Insurance of the

State of Rhode Island and as Domiciliary Receiver

of American Reserve Insurance Company,

Third-Party Defendant.

Nos. 8310SC41, 8310SC591.

Court of Appeals of North Carolina.

April 3, 1984.

Atty. Gen. Rufus L. Edmisten by Asst. Atty. Gen. Richard L. Griffin, Raleigh, for Commissioner of Insurance Ingram, appellant.

Bailey, Dixon, Wooten, McDonald & Fountain by J. Ruffin Bailey and Gary S. Parsons, Raleigh, for Commissioner of Insurance Caldarone, appellant/appellee.

Moore, Van Allen & Allen by Arch T. Allen, III, and Joseph W. Eason, Raleigh, for North Carolina Ins. Guar. Ass'n, appellee.

WHICHARD, Judge.

PROCEDURAL BACKGROUND

This litigation arises from the insolvency of American Reserve Insurance Company (American Reserve), a Rhode Island corporation licensed to do business in North Carolina, which was declared insolvent by a Rhode Island court on 7 May 1979. ¹ The insolvency order named Rhode Island Commissioner of Insurance Thomas J. Caldarone (Commissioner Caldarone) as domiciliary receiver. On 31 May 1979 North Carolina Commissioner of Insurance John R. Ingram (Commissioner Ingram) requested appointment as ancillary receiver. The Wake County Superior Court granted the appointment, making it permanent on 8 June 1979. The same day it allowed the North Carolina Insurance Guaranty Association (the Association) to intervene and to join Commissioner Caldarone as a third-party defendant. On 10 November 1981 the court entered its order of liquidation, which directed that all claimants file their claims within 120 days and that Commissioner Ingram prepare his report of the North Carolina assets and debts of American Reserve.

On 5 August 1981 the North Carolina Reinsurance Facility (the Facility) filed an independent but related action. Its accounts reflected a balance in favor of American Reserve, and it anticipated a conflict between Commissioner Ingram and the Association over those funds. The Facility, after paying the funds (the interpleader funds) into court, interpleaded Meanwhile, Commissioner Ingram filed his receiver's report on 11 August 1982. The Association and Commissioner Caldarone filed timely exceptions. On 24 January 1983 the court entered summary judgment in favor of the Association. Commissioner Ingram appealed.

Commissioner Ingram and the Association. The court subsequently discharged the Facility and allowed Commissioner Caldarone to intervene. On 8 October 1982 the court entered judgment in favor of the Association. Commissioners Ingram and Caldarone appealed.

Since the primary issue in both cases is disposition of the interpleader funds, this Court granted the unopposed motion of Commissioner Caldarone to consolidate the cases for hearing on appeal.

STANDARD OF REVIEW

The interpleader case was tried on stipulated facts. The court granted summary judgment in the receivership action after the parties agreed there was no dispute as to any material fact. The issues involve statutory interpretation. Full appellate review is therefore appropriate, and the conclusions of law "are reviewable de novo." Humphries v. City of Jacksonville, 300 N.C. 186, 187, 265 S.E.2d 189, 190 (1980).

JURISDICTIONAL AND PROCEDURAL ISSUES

I.

Commissioner Ingram contends the trial court erred in failing to dismiss the cross-claim filed against him by the Association in the Facility's interpleader action. The basis of his contention is the following provision in the order appointing him ancillary receiver in the other action:

[A]ll persons, firms, corporations, municipalities and counties are restrained from interfering in any manner with the property or assets of the respondent American Reserve Insurance Company or with the Ancillary Receiver in the exercise of his duties and are hereby restrained from instituting any suit against said Ancillary Receiver or making any attachment, levy, or lien against the assets of the respondent except by the permission of this court first had and obtained....

Assuming, without deciding, that the court in the Facility's action should have dismissed the cross-claim because of this provision, we find no basis for intervening at this juncture. Commissioner Ingram joined the other parties to the litigation in consenting to the Facility's payment of the funds at issue into court and to the discharge of the Facility from further liability on account of said funds. He thereby in effect consented to assertion of the cross-claim against him in the Facility's action and rendered moot the issue now presented. This Court will not entertain the issue merely to determine a now abstract proposition of law as to whether the trial court should have dismissed the cross-claim. Parent-Teacher Assoc. v. Bd. of Education, 275 N.C. 675, 679, 170 S.E.2d 473, 476 (1969). This assignment of error is therefore overruled.

II.

Commissioner Ingram also contends the trial court in the receivership action erred in refusing to exercise jurisdiction over the interpleader funds involved in the Facility's action. When the order containing this refusal was entered, the Facility's action had been appealed to this Court; and pendency of the appeal was the express basis on which the trial court refused to exercise jurisdiction. "[A]n appeal removes a case from the jurisdiction of the trial court and, pending the appeal, the trial judge is functus officio." Bowen v. Motor Co., 292 N.C. 633, 635, 234 S.E.2d 748, 749 (1977). The refusal to exercise jurisdiction thus was proper.

THE STATUTORY SCHEME

Resolution of this appeal primarily requires statutory interpretation. It involves the interrelation of various parts of Chapter 58 of the General Statutes and two The Uniform Insurance Liquidation Act (the Uniform Act), G.S. 58-155.10 to 58-155.17, provides the basic mechanism for the liquidation of American Reserve. Rhode Island, the domicile of American Reserve, is a "reciprocal state" under the Uniform Act. G.S. 58-155.10(9); R.I.Gen.Laws § 27-14-2(7) (1979). Therefore, Commissioner Caldarone, as domiciliary receiver, has primary responsibility for collecting and distributing American Reserve's assets. G.S. 58-155.12; R.I.Gen.Laws §§ 27-14-4, 27-14-5 (1979 & Cum.Supp.1983). Commissioner Ingram, as ancillary receiver, is to recover assets and to liquidate special deposit claims and secured claims which are proved and allowed in the ancillary proceedings. Id.

organizations created under it, the Association and the Facility.

Foreign casualty companies such as American Reserve must make special deposits of securities as a prerequisite to doing business in North Carolina. G.S. 58-182.1, 58-188. The State Treasurer holds these in safekeeping "for the protection of contract holders." G.S. 58-182.6. The policyholders have a statutory lien on the deposits, G.S. 58-185, which they can enforce by suit for sale by the Commissioner when the company "fails to pay any of its liabilities," G.S. 58-184. These deposits "constitute a trust for the benefit of North Carolina policyholders and are not assets of the insolvent insurance company." Ingram, Comr. of Insurance v. Insurance Co., 303 N.C. 623, 629, 281 S.E.2d 16, 20 (1981) (hereinafter Ingram ); see also Guaranty Assoc. v. Assurance Co., 48 N.C.App. 508, 269 S.E.2d 688, disc. rev. denied and appeal dismissed, 301 N.C. 527, 273 S.E.2d 453 (1980), rev'd on other grounds, 455 U.S. 691, 102 S.Ct. 1357, 71 L.Ed.2d 558 (1982). The Uniform Act distinguishes between these "special deposits" and the "general assets" of the insolvent, see G.S. 58-155.10(5), 58-155.10(11), and allows certain claims priority against the special deposits. G.S. 58-155.15. Compare R.I.Gen.Laws §§ 27-14-14, 27-14-15 (1979).

The Association functions to complement these protective deposits. Our Supreme Court has stated:

In 1971, the legislature effected additional protection for North Carolina policyholders by enacting Article 17B, creating an organization, the Insurance Guaranty Association, which would promptly ascertain claims against an insolvent insurer and pay each covered claim of $100 to $300,000 which arises within thirty days of a determination of insolvency. G.S. 58-155.48(a)(1). The purpose of the association "is to provide a mechanism for the payment of covered claims under certain insurance policies, to avoid excessive delay in payment, and to avoid financial loss to claimants or policyholders because of the insolvency of an insurer...." G.S. 58-155.42. At least forty-five states have enacted versions of a Model Post-Assessment Guaranty Association Act. See Hank, Post-Assessment Guaranty Funds: Are They the Ultimate Solution to the Insolvency Problem? 1976 Insurance Law Journal 482. It serves as an adjunct to normal liquidation proceedings. See Cooper Claims Service v. Arizona Insurance Guaranty Ass'n., 22 Ariz.App. 156, 158, 524 P.2d 1329, 1331 (1974). The Guaranty Association is a non-profit unincorporated legal entity which covers all property and casualty insurance business transacted in North Carolina. G.S. 58-155.46. All insurance companies licensed to transact business in North Carolina and not exempted by G.S. 58-155.43 must become members of the Association. G.S. 58-155.46. The Association acts as insurer. G.S. 58-155.48(a)(2).

To pay covered claims, the Guaranty Association assesses its members based upon the percentage of business transacted in North Carolina. G.S. 58-155.48(a)(3). The Association has the power to borrow funds to pay covered...