Safeway Trails, Inc. v. Stuyvesant Insurance Company

• Decision Date: 27 June 1962
• Docket Number: No. C-150-G-61.,C-150-G-61.
• Court: U.S. District Court — Middle District of North Carolina
• Parties: SAFEWAY TRAILS, INC., et al., Plaintiffs, v. The STUYVESANT INSURANCE COMPANY, Equity General Insurance Company, et al., Defendants.

211 F. Supp. 227

SAFEWAY TRAILS, INC., et al., Plaintiffs, v. The STUYVESANT INSURANCE COMPANY, Equity General Insurance Company, et al., Defendants.

No. C-150-G-61.

United States District Court M. D. North Carolina, Greensboro Division.

June 27, 1962.

COPYRIGHT MATERIAL OMITTED

Richard L. Wharton, Greensboro, N. C., and Charles B. McInnis and Richard R. Paradise, Washington, D. C., for plaintiffs.

Smith, Moore, Smith, Schell & Hunter, Greensboro, N. C., for defendants.

PREYER, District Judge.

The plaintiffs have filed suit for Declaratory Judgment and seek an adjudication of their rights in the policies of public liability insurance concerning 1) whether the plaintiffs and other members of the class are entitled to payment under certain agreements reinsuring plaintiffs' policies of public liability insurance, and 2) whether the plaintiffs are entitled to call upon the defendant reinsurers to undertake the defense and adjustment of existing claims and suits under the plaintiffs' policies of public liability insurance.

Plaintiffs, none of whom are residents of North Carolina, are business organizations (bus companies and truck lines), which purchased policies of liability insurance issued by Equity General Insurance Company (hereinafter called Equity General), a Florida corporation, through the T. B. Jones Insurance Service, Inc., Burlington, North Carolina, or Seaboard Underwriters, Inc., a subsidiary of Jones. Equity General was reinsured for certain percentages of the losses it might sustain on the policies issued to the plaintiffs with five companies ("quota share" agreements). Equity General was also reinsured by one company (Stuyvesant) for losses sustained by it (Equity General) in excess of $25,000.00 ("excess agreement"). All of these reinsuring companies are named as defendants in this action. All of these Reinsurance Agreements were negotiated, signed, and delivered outside the State of North Carolina. The Reinsurance Agreements were between Equity General and the reinsuring companies, and the plaintiffs were not parties to the agreements.

Thereafter, Equity General became insolvent, and in Florida, the state of its incorporation, a receiver was appointed by the Florida Court having jurisdiction. The receiver was directed to take possession of all of the assets of Equity General. Defendant reinsurers have been ordered by the Florida Court to make payments to the Florida receiver under the Reinsurance Agreements, which provide for payment to the receiver in the event of insolvency by Equity General.

Plaintiffs, who contend that since the insolvency of Equity General they have been forced to defend lawsuits and pay claims against them, have declined to present to the Florida receiver their claims under the policies issued by Equity General.

The plaintiffs have brought this suit seeking to have this Court declare that they may recover on the Reinsurance Agreements directly against the reinsurers. In so far as the motions now before this Court are concerned, the basic positions of the defendant reinsurers herein are that as to three of them they are not subject to service of process in North Carolina, and that as to all of the defendants the action should be dismissed because this Court does not have jurisdiction over the subject matter, such jurisdiction being in the Florida Court.

None of the parties to this suit are residents of the State of North Carolina, except the defendant Charles F. Gold, as Ancillary Receiver for the State of North Carolina of Equity General Insurance Company. Two of the plaintiffs are licensed to do business in North Carolina.

The defendants, The Unity Fire and General Insurance Company (Unity), United States Liability Insurance Company (United States Liability), and Global Reinsurance Company (Global) are not licensed or authorized to do business in North Carolina, and had no agents and no offices or property therein.

The three other defendants The Stuyvesant Insurance Company (Stuyvesant), Preferred Insurance Company (Preferred), and Nationwide Mutual Insurance Company (Nationwide) are all licensed and authorized to do business in the State of North Carolina.

The plaintiffs have attempted to obtain service of process on all of the defendant reinsurers under the provisions of the General Statutes of North Carolina, G.S. § 58-153.1, the "Unauthorized Insurers Process Act." Since Stuyvesant, Preferred and Nationwide are licensed and authorized to do business in North Carolina, those reinsurers do not contest the service of process. However, it is contended that the defendants Unity, United States Liability and Global are not subject to service of process in the State of North Carolina.

In addition, all of the defendant reinsurers move to dismiss this suit on the ground that this Court does not have jurisdiction over the subject matter of the action.

The Reinsurance Agreements (Treaties) between the reinsurers and Equity General involved in this litigation were negotiated in the State of New York through a reinsurance broker, Home and Overseas Offices, Ltd. of New York City.

All of the Reinsurance Agreements provide that they reinsure the original policies of Equity General written through T. B. Jones Insurance Service, Inc. of Burlington, North Carolina, or Jones' subsidiaries.

Jones sold policies of public liability insurance of Equity General to the plaintiffs and to others throughout the eastern part of the United States, collected the premiums, and transmitted the premiums to Equity General. Equity General then paid premiums as provided for in the Reinsurance Agreements to Home and Overseas in New York. Home and Overseas delivered the reinsurance premiums to the reinsurers from its offices in New York. However, Equity General did not pay a substantial amount of reinsurance premiums due the reinsurers.

JURISDICTION OF THE PERSON

Service of process was attempted in this action on defendants Unity, United States Liability, and Global by virtue of G.S. § 58-153.1, of the North Carolina "Unauthorized Insurers Process Act."¹ The pertinent provisions of G.S. § 58-153.1 are as follows:

"Unauthorized Insurers Process Act. —(a) Purpose of Section.—The purpose of this section is to subject certain insurers to the jurisdiction of courts of this State in suits by or on behalf of insureds or beneficiaries under insurance contracts. The General Assembly declares that it is a subject of concern that many residents of this State hold policies of insurance issued by insurers not authorized to do business in this State, thus presenting to such residents the often insuperable obstacle of resorting to distant forums for the purpose of asserting legal rights under such policies. In furtherance of such State interest, the General Assembly herein provides a method of substituted service of process upon such insurers and declares that in so doing it exercises its power to protect its residents and to define, for the purpose of this statute, what constitutes doing business in this State, and also exercises powers and privileges available to the State by virtue of Public Law 15, 79th Congress of the United States, chapter 20, 1st Session, s. 340, as amended, which declares that the business of insurance and every person engaged therein shall be subject to the laws of the several states.

"(b) Service of Process upon Unauthorized Insurer.

"(1) Any of the following acts in this State, effected by mail or otherwise, by an unauthorized foreign or alien insurer:

"(a) The issuance or delivery of contracts of insurance to residents of this State or to corporations authorized to do business therein,

"(b) The solicitation of applications for such contracts,

"(c) The collection of premiums, membership fees, assessments or other considerations for such contracts, or

"(d) Any other transaction of business,

is equivalent to and shall constitute an appointment by such insurer of the Commissioner of Insurance and his successor or successors in office, to be its true and lawful attorney, upon whom may be served all lawful process in any action, suit, or proceeding instituted by or on behalf of an insured or beneficiary arising out of any such contract of insurance, and any such act shall be signification of its agreement that such service of process is of the same legal force and validity as personal service of process in this State upon such insurer." (Emphasis added.)

We think the plain language of the statute—note especially the italicized words and phrases—manifests that the primary purpose of the statute is to protect residents of this State, and to prevent the necessity of North Carolina residents from resorting to distant forums to assert rights under insurance policies. Here, none of the plaintiffs are residents of North Carolina² and are not entitled to take advantage of the statute. Although the point has not been before a North Carolina court, an almost identical New York statute has been construed to be for the protection only of New York residents in suits based on policies delivered to them in New York. Clifton Products, Inc., v. American Universal Insurance Co., 169 F.Supp. 842 (S.D.N.Y.1959).

Plaintiffs point to a North Carolina decision, Suits v. Old Equity Life Ins. Co., 241 N.C. 483, 85 S.E.2d 602 (1955), which involved service under G.S. § 58-164(e) (1) (See footnote 1). This decision was prior to the enactment of G.S. § 58-153.1 and the present case. In Suits, plaintiff was a citizen and resident of North Carolina and was solicited through the mails at his home in North Carolina, and Suits paid the premiums by mailing them to the office of the foreign insurer. Other acts were done by the insurer in North Carolina. The Supreme Court of North Carolina held that the foreign insurer was transacting business within this State. The case is distinguishable, not only because Suits was a resident of North Carolina and paid his premiums from North Carolina, but because the...