Smith v. Ohio Valley Ins. Co.

• Decision Date: 21 July 1971
• Docket Number: No. 71-236,71-236
• Citation: 272 N.E.2d 131,27 Ohio St.2d 268
• Parties: , 56 O.O.2d 160 SMITH, Supt. of Insurance, Appellant, v. OHIO VALLEY INS. CO. et al., Appellees.
• Court: Ohio Supreme Court

Page 268

27 Ohio St.2d 268

272 N.E.2d 131, 56 O.O.2d 160

SMITH, Supt. of Insurance, Appellant, v. OHIO VALLEY INS. CO. et al., Appellees.

No. 71-236.

Supreme Court of Ohio.

July 21, 1971.

Syllabus by the Court

1. The obligation of Ohio Insurance Guaranty Association as to the payment of existing claims against an insurance company, judicially decreed to be insolvent and ordered liquidated, pursuant to the Ohio Insurance Guaranty Act, R.C. Chapter 3955, does not include all claims existing prior to the judicial determination of insolvency and arising within thirty days of such determination, but is restricted to the payment of 'covered claims,' as defined by R.C. § 3955.01(B).

2. A claim already in existence against an insurance company prior to the effective date of the Ohio Insurance Guaranty Act, on September 4, 1970, is not a 'covered claim,' as defined by R.C. § 3955.01(B).

This case involves questions of interpretation and constitutionality of the Ohio Insurance Guaranty Association Act R.C. Chapter 3955 (133 Ohio Laws 2939), effective September 4, 1970, in its application to the insolvency of the Ohio Valley Insurance Company.

The pertinent facts are included in the opinion.

William J. Brown, Atty. Gen., and William M. Lane, Columbus, for appellant.

Crabbe, Newlon, Potts, Schmidt, Brown & Jones and William L. Schmidt, Columbus, for Buckeye Union Ins. Co.

Vorys, Sater, Seymour & Pease, Columbus, for Ohio Ins. Guaranty Assn.

Stewart & DeChant, Co., L. P. A., and Thomas H. DeChant, Cleveland, for Ken Bailey and others.

LEACH, Justice.

At issue in this case is the applicability of the Ohio Insurance Guaranty Association Act, R.C. Chapter 3955, which became effective September 4, 1970, as to claims against an insolvent insurance company (Ohio Valley Insurance Company), where such claims existed prior to September 4, 1970, where the company from December 31, 1969, on 'was (continuously) insolvent in the sense that it did not possess sufficient assets with which to discharge its liabilities and in the sense that it did not possess sufficient liquid assets to meet its obligations as such obligations become due,' but where the company was not decreed by a court to be insolvent and ordered liquidated until November 27, 1970.

Proceedings in this case began on August 12, 1970, when the Superintendent of Insurance of the state of Ohio, appellant herein, filed a complaint in the Common, Pleas Court of Franklin County alleging that Ohio Valley was insolvent and praying for an order, pursuant to R.C. § 3903.03 et seq., for the rehabilitation or liquidation of that company.

After unsuccessful efforts directed toward rehabilitation, the Common Pleas Court, on November 13, 1970, found that further efforts to rehabilitate Ohio Valley would be futile and ordered the Superintendent to proceed to liquidate. The journal entry of the court, so finding and so ordering, was entered on November 27, 1970.

Subsequent to the filing of the complaint by the Superintendent on August 12, 1970, the Ohio Guaranty Association Act became effective. This Act created a nonprofit unincorporated association to be known as The Ohio Insurance Guaranty Association. R.C. § 3955.06. The Guaranty Association includes as 'member insurer(s)' anyone 'who writes any kind of insurance to which this act applies * * * and is licensed to transact any insurance in this state.' R.C. § 3955.01(D). (Buckeye Union Insurance Company, the adversary appellee herein, is such a member insurer.)

The Act defines an 'insolvent insurer' as meaning 'an insurer authorized to transact insurance in this state either at the time the policy was issued or when the insured event occurred, decreed by a court of competent jurisdiction of the state of such insurer's domicile to be insolvent, and ordered by or pursuant to the authority of such court to be liquidated.' R.C. § 3955.01(C).

It provides that the Guaranty Association shall 'be obligated to the extent of the covered claims existing prior to the determination that an insolvent insurer exists and arising within thirty days after such determination * * *.' R.C. § 3955.08(A)(1).

The funds from which the Guaranty Association is required to make such payment are derived from assessments against its members, the Guaranty Association being authorized to 'assess member insurers separately for each account amounts necessary to pay the obligations of the association under division (A)(1) of this section subsequent to an insolvency * * *.' R.C. § 3955.08(A)(3).

On November 27, 1970, the Common pleas Court having decreed that Ohio Valley was insolvent and having ordered its liquidation, the Superintendent notified the Guaranty Association to such effect. Thereafter Buckeye, as an intervening defendant with permission of the court, sought declaratory judgment as to the respective rights of the Superintendent, the Guaranty Association and the member insurers of the Guaranty Association as to the obligation for payment of existing claims against Ohio Valley.

Guaranty Association also intervened as a party defendant, and is denominated as an appellee in this court, but has taken no adversary position as to the applicable law. A group of persons, Ken Bailey et al. (claimants), having existing claims against Ohio Valley, also intervened.

In the Common Pleas Court, it was the position of Buckeye that since Ohio Valley was actually insolvent before the effective date of the Ohio Insurance Guaranty Association Act to require Guaranty Association to pay any existing claims against Ohio Valley, based on a judicial decree of insolvency after the effective date of the law, would be in violation of the provision of Section 28, Article II of the Ohio Constitution, providing that the 'general assembly shall have no power to pass retroactive laws.'

Relying on the definition of an 'insolvent insurer' in R.C. § 3955.01(C), which requires (1) a court decree of insolvency and (2) a court order of liquidation, it was the position of the Superintendent and of the intervening claimants that the legislation was prospective in nature, and not constitutionally retroactive, since the law became operative only upon the happening of an event subsequent to the effectiveness of the law, i. e., the court decree.

The trial court found, as a matter of fact, that Ohio Valley, beginning December 31, 1969, was and continued to be 'insolvent in the sense that it did not possess sufficient assets with which to discharge its liabilities and in the sense that it did not possess sufficient liquid assets to meet its obligations as such obligations became due.' That court concluded as a matter of law that R.C. Chapter 3955 was constitutional; that it applied 'to the present liquidation proceedings of Ohio Valley Insurance Company despite the fact that Ohio Valley Insurance Company was insolvent * * * prior to September 4, 1970'; that Ohio Valley 'became an 'insolvent insurer' within the meaning of Chapter 3955, Ohio Revised Code, and as defined in Section 3955.01(C), Ohio Revised Code, on November 27, 1970, which date is after the effective date of Chapter 3955, Ohio Revised Code'; and that 'Ohio Insurance Guaranty Association is fully liable and obligated to handle, process and pay all of the claims of Ohio Valley Insurance Company pursuant to Chapter 3955, Ohio Revised Code; * * *' (Emphasis added.)

At this point, we might note that the entire focus of the case, as presented to the Common Pleas Court, concerned the obligation of Guaranty Association to pay any existing claims against Ohio Valley, premised on the assertion by Buckeye that such was precluded by the fact that Ohio Valley was actually insolvent prior to the effective date of the Ohio Insurance Guaranty Act. No discussion appears as to the meaning of 'all of the claims' of Ohio Valley 'pursuant to' R.C. Chapter 3955, as referred to by the trial court.

Upon appeal by Buckeye to the Court of Appeals, that court concluded, as stated in its opinion:

'The date of insolvency has no bearing upon the determination of whether R.C. Chapter 3955 is retroactive because the insolvency continued and existed after the effective date as well as before, so long as R.C. Chapter 3955 operates upon the existing insolvency prospectively. Accordingly, R.C. Chapter 3955 is not retroactive with regard to claims arising on or after the effective date, September 4, 1970, regardless of when the insurance policy was issued. The rights of the claimant and the obligation of the association and Buckeye with respect to such a claim all arise while the statute is in effect. There can be no retroactivity because there was no preexisting claim.

'It is the finding of this court, however, that R.C. Chapter 3955 is retroactive as to claims arising prior to September 4, 1970, from the insolvency of Ohio Valley Insurance Co., and is, therefore, to this extent, unconstitutional as applied to intervener-appellant, Buckeye Union Insurance Company, and like member insurers, in the liquidation of Ohio Valley Insurance Co., and that Ohio Insurance Guaranty Association has no duty or liability in the processing, handling, or payment of claims arising prior to September 4, 1970, out of the liquidation of Ohio Valley.'

After entry of judgment to this effect by the Court of Appeals, appeal was taken to this court by the Superintendent. No cross-appeal was taken by Buckeye, which now concedes that claims which arose against Ohio Valley on or after September 4, 1970 (but priot to 30 days after the court's decree of insolvency), are required to be paid by Guaranty Association, and that Buckeye would be subject to an assessment to effectuate such payment.

This case has been extensively briefed by respective counsel as to the question of whether legislation, requiring payment by Guaranty Association of claims theretofore existing against an insurance company, judicially decreed to be insolvent after such legislation, and requiring...