Oklahoma Life & Health Ins. Guar. Ass'n v. Hilti Retirement Sav. Plan

• Decision Date: 11 March 1997
• Docket Number: No. 82447,82447
• Citation: 939 P.2d 1110,1997 OK 25
• Parties: , 1997 OK 25 OKLAHOMA LIFE & HEALTH INSURANCE GUARANTY ASSOCIATION, Appellee, v. The HILTI RETIREMENT SAVINGS PLAN & Bancoklahoma Trust Company, Inc., Appellants.
• Court: Oklahoma Supreme Court

Page 1110

939 P.2d 1110

1996 OK 91, 1997 OK 25

OKLAHOMA LIFE & HEALTH INSURANCE GUARANTY ASSOCIATION, Appellee, v. The HILTI RETIREMENT SAVINGS PLAN & Bancoklahoma Trust

Company, Inc., Appellants.

No. 82447.

Supreme Court of Oklahoma.

March 11, 1997.

Rehearing Denied June 20, 1997.

Theodore Q. Eliot, Tulsa, Marvin York, Oklahoma City, for Appellants.

Michael D. Coleman, James W. Rhodes, Oklahoma City, for Appellee.

HODGES, Justice.

The issues in this case are (1) whether the 1988 amendments to the Oklahoma Life and Health Insurance Guaranty Act, Okla.Stat. tit. 36, §§ 2021-43 (1991) (1991 Act), or the pre-amended Act, Oklahoma Life and Health Insurance Guaranty Act, Okla.Stat. tit. 36 § § 2021-43 (Supp.1987) (1987 Act), is the applicable statutory authority, and (2) whether the Guaranteed Annuity Contracts which are the subject of this lawsuit are covered by the applicable act.

I. THE FACTS

On December 14, 1987, Bancoklahoma Trust Company, the trustee of the Hilti Retirement Savings Plan (Plan), signed an agreement with Executive Life Insurance Company (ELIC) to invest money from the Plan in what is termed in the industry guaranteed investment contracts (GICs). GICs are one form of unallocated annuity contracts. The agreement showed the date of issue as October 9, 1987. Then again on May 16, 1988, the trustee signed another such agreement with ELIC with the date of issue as November 1, 1987.

A GIC is a contract wherein the trustee invests funds in an unallocated annuity contract, thus named because none of the funds are allocated to any individual. In this case, each employee had the choice of several investments. The employees usually diversified their investments, with only a portion of their money in the GICs and the remaining in either stocks, mutual funds, CDs, etc. The interest rate on the GICs was guaranteed by ELIC.

The trustee of the Plan was the owner of the GICs and, as such, was the only person who could withdraw money from the GICs and who had any control over the GICs. If an employee changed the allocation from the GIC to another investment, the trustee had the discretion to withdraw funds so as to make the change in investments. If an employee retired during the term of the GIC contract, the trustee also had the discretion to direct ELIC to purchase an individual annuity contract for that employee. Further, under the GIC contracts, the trustee was the only person to whom ELIC owed any duty.

Although it appears ELIC paid a membership fee to the Oklahoma Life and Health Guaranty Association (Association) because it also sold life insurance policies, the record is absent any evidence that ELIC paid premiums under section 2030 of title 36 of the Oklahoma Statutes on the GICs. Likewise the record is void of any evidence that the Association attempted to collect premiums on the GICs.

In 1991, ELIC failed and the insolvency proceedings were instituted in the California courts. The Plan and the trustee petitioned the Association for coverage under the Oklahoma Life and Health Insurance Guaranty Act, Okla.Stat. tit. 36, §§ 2021-43 (Supp.1987 & 1991). The Board of Directors for the Association rejected the claim and, in anticipation of other claims resulting from ELIC's insolvency, filed a declaratory judgment action. Finding that GICs were not covered by the Act, the trial court, Honorable Niles Jackson, entered summary judgment for the Association. The Court of Civil Appeals affirmed. This Court granted certiorari.

II. ANALYSIS

A. The 1991 Act applies to the unallocated annuity contracts (the GICs) in this case.

The 1987 Act does not apply because ELIC was not insolvent until 1991. Section 2028 of the 1987 and 1991 Acts provides for payments by the Guaranty Association for covered policies of impaired or insolvent insurers. Subsection 2024(7) of both Acts defines an "insolvent insurer" as one who "after the effective date of th[e] Act, is placed under an order of liquidation by a court of competent jurisdiction with a finding of insolvency". (Emphasis added.) ¹ Because ELIC did not become insolvent, i.e. had not been found to be insolvent by a court of competent jurisdiction, until after the effective date of the 1991 Act, both of the unallocated annuity contracts at issue in the case are governed by the 1991 Act.

Other courts have reached this same conclusion when considering similar statutory language in cases involving guaranty associations: Collins v. Cumberland Gap Provision Co., Inc., 754 S.W.2d 864 (Ky.Ct.App.1988) (worker's compensation claim); Durish v. Channelview Bank, 809 S.W.2d 273 (Tx Ct.App.1991) (surety bond); see Aetna Life Ins. Co. v. Washington Life and Disability Ins. Guar. Ass'n, 83 Wash.2d 523, 520 P.2d 162, 170 (1974).

B. The 1991 Act excludes GICs, otherwise known as unallocated annuity contracts, from coverage.

1. Clear statutory language shows the Oklahoma Legislature intended to exclude unallocated annuity contracts from coverage.

Section 3(b)(1) of the 1985 Model Act provides coverage for unallocated annuity contracts, including GICs, which it defines as "any annuity contract or group annuity certificate which is not issued to and owned by an individual, except to the extent of any annuity benefits guaranteed to an individual by an insurer under such contract or certificate." Life and Health Guaranty Association Model Act § 3(b)(1) (National Association of Insurance Commissioners 1985) (1985 Model Act). The Oklahoma Legislature used this same definition in subsection 2025(B)(2)(g) of the 1991 Act and excluded unallocated annuity contracts from coverage.

Subsection 2025(B)(2)(g) of the 1991 Act provides:

This act shall not provide coverage for ... any annuity contract or group annuity certificate which is not issued to and owned by an individual, except to the extent of any annuity benefits guaranteed to an individual by an insurer under such contract or certificate....

It would have been difficult for the Oklahoma Legislature to have been more explicit that it intended to exclude unallocated annuity contracts (GICs) from coverage. Clearly the GICs were intended to be excluded from coverage by the 1991 Oklahoma Act.

Bennet v. Virginia Life, Accident and Sickness Insurance Guaranty Ass'n, 251 Va. 382, 468 S.E.2d 910 (1996), is directly on point. Section 38.2-1700(C)(5) of chapter 17 of the Virginia statutes exempted from coverage "[a]ny contract or certificate which is not issued to and owned by an individual, except to the extent of ... any annuity benefits guaranteed to an individual by an insurer under such contract or certificate." This is the same language used in the 1991 Oklahoma Act. The Virginia Supreme Court held that, under this provision, GICs were not covered by Virginia's Guaranty Act. Likewise, GICs are excepted from coverage under the Oklahoma Act.

2. Implied statutory language shows the Oklahoma Legislature intended to exclude unallocated annuity contracts from coverage.

The 1985 Model Act and other states' statutes which provide for coverage of unallocated annuity contracts, including GICs, provide a maximum liability exposure for the Guaranty Association. Ark.Stat. § 21.79.025(3) (1995) ($5,000,000 limit); Cal. Insurance Code § 1067.02(c)(2)(C) (1995) ($5,000,000 limit); Conn.Gen.Stat. § 38a-860(c)(2)(C) (1995) ($5,000,000 limit); Del.Code.Ann.Tit. 18 § 4403(c)(2)(c) (1995) ($1,000,000 limit); Ga.Code Ann. § 33-38-7(9) (1996) ($5,000,000 limit); Ill.Rev.Stat. ch. 215, para. 5/531.03(3)(b)(iii) (1996) ($5,000,000 limit); Ind.Code § 27-8-8-5 (1996) (($5,000,000); Mich.Comp.Laws § 500.7704(4)(d) (1996) ($5,000,000 limit); Minn.Stat. § 61B.19(4)(6) (1996) ($7,500,000 limit); Miss.Code Ann. § 83-23-205(3)(b)(iii) (1995) ($5,000,000 limit); Mont.Code Ann. § 33-10-224(2)(c) (1995) ($5,000,000 limit); N.H.Rev.Stat.Ann. § 408-B:5(III)(b)(4) (1995) ($5,000,000 limit); N.C.Gen.Stat. § 58-62-21 (1995) ($5,000,000 limit); N.D.Cent.Code § 26.1-38.1-01(4)(d) (1995) ($5,000,000 limit); Ohio Rev.Code Ann. § 3956.04(C)(2)(c) (1996) ($1,000,000 limit); Or.Rev.Stat. § 734.810(10) (1995) ($5,000,000 limit); 40 Pa.Stat. § 991.1703(c)(1)(ii)(C) ($5,000,000 limit); R.I.Gen.Laws § 27-34.3-3(C)(2)(d) (1995) ($5,000,000 limit); Tex.Ins.Code Ann. Art 21.28-D, § 5(3)(B) (1996) ($5,000,000 limit); Utah Code Ann. § 31A-28-103(2)(c)(iii) (1996) ($5,000,000 limit); Vt.Stat.Ann.Tit. 8, § 4158(8)(B)(iii) ($1,000,000 limit); Wash.Rev.Code § 48.32A.020(3)(b) (1995) ($5,000,000 limit).

In section 3(b)(2)(B), the 1985 Model Act recommends the following: "Provided, however that in no event shall the Association be liable to expend more than the $300,000 in the aggregate with respect to any one life under subsection (a), (b), and (c) above: (B) with respect to any one contract holder, $5,000,000 in unallocated annuity contract benefits, irrespective of the number of such contracts held by the contract holder." Oklahoma's statute does not provide this limitation. Because the Oklahoma Legislature categorically excepted unallocated annuity contracts (including GICs) from coverage, it did not need to provide a limitation for the Guaranty Association's liability for such contracts. See Okla.Stat. tit. 36, § 2025(C) (1991).

The Oklahoma Legislature also rejected the 1985 Model Act's provision establishing a fund for unallocated annuity contracts. Section 6(a) of the 1985 Model Act provides for four funds: (1) a life insurance account, (2) a health insurance account, (3) an annuity account, excluding unallocated annuity contracts, and (4) an unallocated annuity contract account. Likewise, the states that include coverage for unallocated annuity contracts provide for a separate account.

Because Oklahoma rejected coverage for unallocated annuity contracts, the 1991 Act provides for only three of the four accounts recommended by the 1985 Model Act. Those are: (1) a health insurance account, (2) a life insurance account, and (3) an annuity account. In fact, the Oklahoma Legislat...