State of Fla. ex rel. O'Malley v. Department of Ins.

• Decision Date: 31 January 1973
• Docket Number: No. 971A186,971A186
• Citation: 291 N.E.2d 907,155 Ind.App. 168
• Parties: STATE OF FLORIDA ex rel. Thomas D. O'MALLEY, Insurance Commissioner and Treasurer of the State of Florida, as Head of Department of Insurance, as Ancillary Receiver of United Bonding Insurance Company, Appellant (Interested Party Below), v. DEPARTMENT OF INSURANCE of the State of Indiana, Appellee (Petitioner Below).
• Court: Indiana Appellate Court

Page 907

291 N.E.2d 907

155 Ind.App. 168

STATE OF FLORIDA ex rel. Thomas D. O'MALLEY, Insurance Commissioner and Treasurer of the State of Florida, as Head of Department of Insurance, as Ancillary Receiver of United Bonding Insurance Company, Appellant (Interested Party Below), v. DEPARTMENT OF INSURANCE of the State of Indiana, Appellee (Petitioner Below).

No. 971A186.

Court of Appeals of Indiana, Second District.

Jan. 31, 1973.

Charles S. Gleason, Gleason, Woods & Johnson, Indianapolis, for appellant.

Theodore L. Sendak, Atty. Gen., Don A. Tabbert, Wm. D. Lalley, and Robert B. Keene, Sparrenberger, Duvall, Tabbert & Lalley, Indianapolis, for appellee.

Donald A. Schabel, Indianapolis, for amicus curiae Emmco Insurance Co.; Buschmann, Carr & Schabel, Indianapolis, of counsel.

BUCHANAN, Presiding Judge.

CASE SUMMARY--This is an appeal by 'Interested Party'-Appellant, the State of Florida ex rel. Thomas D. O'Malley, its Insurance Commissioner and Treasurer (hereinafter referred to interchangeably as Florida and the Florida Ancillary Receiver), from an Order denying Florida the right to distribute reinsurance proceeds to Florida claimants, in an Indiana statutory liquidation proceeding instituted by Petitioner-Appellee, the Department of Insurance of the State of Indiana (the Department) for the liquidation of United Bonding Insurance Company (United).

We affirm.

FACTS--The facts and evidence most favorable to the Department and the judgment below are:

On February 18, 1971, the Department filed an application with the Superior Court of Marion County, Room 7 (the Marion Superior Court), seeking a restraining order, injunctive relief and liquidation of United, an Indiana corporation. The next day the Department's application was granted and the Department was ordered, as domiciliary receiver, to take possession of all the property and assets of United, none of which appear from the record to have been located in the State of Florida. Joseph D. Geeslin, Jr. (the Liquidator) was appointed special deputy to liquidate United's business.

Five years prior to the liquidation order, United had entered into a quota share reinsurance treaty (Reinsurance Treaty) with Emmco Insurance Company (Emmco), another Indiana corporation. The terms of the Reinsurance Treaty became effective on January 1, 1966. Under its terms Emmco agreed to accept 42 1/2% of United's liability incurred on all fidelity and surety bonds written by United.

Article VIII of the Reinsurance Treaty pertaining to the insolvency of United provided in part:

'In the event of the insolvency of the Company, any reinsurance that may be payable under this agreement to the Company by the Reinsurer shall be paid by the Reinsurer to the Company or its liquidator, receiver or statutory successor on the basis of the liability of the Company to the bonds reinsured without reduction because of the insolvency of the Reinsured in accordance with the provisions of any state law which may be involved.

'In the event of the insolvency of the Company, the liquidator, receiver, or statutory successor of the Company shall give written notice to the Reinsurer of the pendency of a claim against the insolvent company on the bond reinsured within the reasonable time after such claim is filed in the insolvency proceeding. During the pendency of such claim, the Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated, any defense or defenses which it may deem available to the Company or its liquidator, receiver, or statutory successor. The expense thus incurred by the Reinsurer, shall be chargeable, subject to court approval, against the insolvent company as part of the expense of the liquidation to the extent of the proportionate share of the benefits which may accrue to the Company solely as a result of the defense undertaken by the Reinsurer.'

Following the liquidation order, Emmco made a proposal (the Proposal) to the Liquidator, which sought to effectuate Article VIII of the Reinsurance Treaty by offering to adjust and pay claims of United for which Emmco shared liability or potential liability and for which advancements Emmco would be reimbursed from other recoveries by the Liquidator.

On March 31, 1971, the Liquidator petitioned the Marion Superior Court for instructions, and on the same day it instructed the Liquidator to accept the Proposal and proceed to adjust claims with payment thereof advanced by Emmco under the conditions set forth in the Proposal.

Meanwhile, on March 16, 1971, the Circuit Court of Leon County, Florida, appointed the Department of Insurance of the State of Florida as Ancillary Receiver of United's Florida assets pursuant to Chapter 631 of the Florida Insurance Rehabilitation and Liquidation Act. The general duties of the Florida Ancillary Receiver were to liquidate United's Florida business and to conserve Florida assets held by United.

Then on May 3, 1971, the State of Florida by O'Malley as Insurance Commissioner, Treasurer of the State of Florida, and an Ancillary Receiver, by counsel, filed in the Marion Superior Court a Motion of Interested Party For Order Modifying 3/31/71 Order For Instructions (Motion to Modify) which sought to modify the Marion Superior Court's Order of March 31, 1971 so as to reserve to Florida all rights of reinsurance pertaining to Florida business. No separate appearance or other pleading was filed by Florida acting through O'Malley in his various capacities. The prayer of this Motion read as follows:

'WHEREFORE, Thomas D. O'Malley, Insurance Commissioner and Treasurer of State of Florida, as Head of Department of Insurance As Ancillary Receiver of United Bonding Insurance Company, prays this honorable Court for an Order Amending Instructions dated March 31, 1971, to except all within the jurisdiction of the Florida Ancillary Receiver and reserving to him all rights of all reinsurance and quota share treaties appurtaining (sic) to Florida business.'

On June 28, 1971, after hearing evidence and argument of counsel, the Marion Superior Court denied Florida's Motion and entered the following judgment (omitting formal parts):

'1. That the reinsurer herein, Emmco Insurance Company, by the terms of its reinsurance agreements (O'Malley Exhibits 1 and 2) did not bind itself to the terms and conditions of the original contracts (insurance policies or bonds) entered into between United Bonding Insurance Company, the defendant, and any insured or beneficiary or obligee of any policy or bond.

'2. That any proceeds of the reinsurance agreements due from Emmco Insurance Company, the reinsurer, are assets of the Liquidation proceedings herein for the benefit of general creditors.

'3. That the Motion to Modify and for Instructions of Thomas D. O'Malley should be denied.

'It is, therefore, ORDERED and ADJUDGED that the Motion for Amended Instructions and to Modify this Court's Order of March 31, 1971 is hereby overruled and denied.' (Emphasis Supplied.)

After its timely Motion to Correct Errors which was overruled, Florida now appeals.

ISSUES

Our conception of the issues raised by Florida are:

ISSUE I--Did the Marion Superior Court have personal jurisdiction over the Florida Ancillary Receiver in his various capacities representing the state of Florida?

ISSUE II--Did the Marion Superior Court have jurisdiction over the subject matter of this litigation?

ISSUE III--Is the Florida Ancillary Receiver entitled to any part of the proceeds of the Reinsurance Treaty proceeds contributed by Emmco?

ISSUE IV--Does the Florida Ancillary Receiver have standing to question the Marion Superior Court's approval of the Proposal between the Liquidator and Emmco?

As to ISSUE ONE, the Florida Ancillary Receiver argues that the Indiana Court did not have jurisdiction over the person of the Florida Ancillary Receiver for the reason that the Florida Ancillary Receiver's May 3, 1971 appearance was only for the purpose of contesting the jurisdiction of the Court--a special not a general appearance.

In reply, the Department and Emmco (by Amicus Curiae Brief) contend that the Florida Ancillary Receiver's appearance was a general appearance and its Motion to Modify the Marion Superior Court's March 31, 1971 order was a claim for relief. Therefore, the Florida Ancillary Receiver voluntarily submitted to the general jurisdiction of the Indiana Court.

As to ISSUE TWO, the Florida Ancillary Receiver contends that the Indiana Court lacked subject matter jurisdiction because Florida-citizen claimants are not within the jurisdiction of the Marion Superior Court.

The Department and Emmco both reply that the Indiana Court did have subject matter jurisdiction because the subject matter of this action is an Indiana liquidation proceeding and the proceeds of an Indiana reinsurance treaty executed between two Indiana insurance corporations.

As to ISSUE THREE, the Florida Ancillary Receiver argues that the doctrine of common law comity prevents the Department from exerting control over Florida claims. Because the State of Florida has restricted the common law doctrine of comity to those states which have adopted the Uniform Insurers' Liquidation Act (the Uniform Act), the extra-territorial vesting of contract rights of a foreign domiciliary liquidator does not extend to Florida when the domiciliary liquidator is located in a state like Indiana which has not adopted the Uniform Act.

Emmco denies that comity is an issue and further that the Florida Ancillary Receiver is not entitled to control any part of the Reinsurance Treaty proceeds due from Emmco because all such proceeds are exclusively the assets of the Department located in Indiana.

As to ISSUE FOUR, the Florida Ancillary Receiver, under Specifications of Error 3 through 15, presents arguments as to why the Proposal is illegal under Indiana law.

Emmco contends that since the Florida Ancillary Receiver is not...