Tuttle, State Comm'r of Banking & Ins. v. State Mut. Liab. Ins. Co.

• Decision Date: 21 October 1924
• Citation: 127 A. 682
• Parties: TUTTLE, State Commissioner of Banking and Insurance v. STATE MUT. LIABILITY INS. CO.
• Court: New Jersey Court of Chancery

127 A. 682

TUTTLE, State Commissioner of Banking and Insurance

v. STATE MUT. LIABILITY INS. CO.

Court of Chancery of New Jersey.

Oct. 21, 1924.

[Copyrighted material omitted.]

Suit by William E. Tuttle, Jr., State Commissioner of Banking and Insurance, against the State Mutual Liability Insurance Company. On order to show cause on receiver's petition for instructions. Instructions given.

See, also, 127 A. 688.

William Newcorn, of Plainfield, for receiver.

Harold B. Wells, of Bordentown, Jacob L. Furer, and Thomas L. Gaskill, both of Camden, Grosken & Moriarty, of Newark, and Warren, Britt & Stanton, of Jersey City, for divers respondents.

BUCHANAN, V. C. The receiver of the defendant Mutual Insurance Company filed petition for aid and instruction from the court as to the following matters:

(1) Whether or not the claims filed with the receiver should be classified, and if so, in what order?

(2) Whether or not the receiver should allow the counsel fees and court costs contracted by policy holders, after the decree of insolvency, in defending suits covered by the policies?

(3) Whether or not the receiver should allow claims for unearned premiums and permit such claimants to set off such claims against assessments levied or to be levied?

(4) Whether or not the claims filed for counsel fees for services to the company, rendered prior to the decree of insolvency, should be allowed or reduced?

(5) Whether or not the receiver should be authorized to institute contempt proceedings against policy holders who had failed to pay the assessment levied under the order of this court?

An order to show cause in respect of the foregoing matters was issued and served in the usual manner upon the creditors and policy holders of the company, a number of whom appeared by counsel on the return thereof, and oral argument was had and briefs submitted on the various points involved.

I am satisfied that the course sought to be taken in the present instance is not the best, nor the proper practice. A receiver, as an officer of this court, is of course entitled to the assistance and instruction of the court as to matters arising in the administration of his trust, and in regard to some matters (such for instance as the question of levying an assessment, heretofore brought up in this cause) to bring in all parties interested and bind them by such order as might be made. As to other matters, the advice of the court may sometimes properly be asked, but less formally, and without the issuance of process to the creditors and stockholders.

This is particularly true as to the questions of allowance of claims involved in the present proceedings. Section 56 of the Insurance Act (2 Comp. St. p. 2836, at page 2854) incorporates into that statute the provisions of the general Corporation Act (2 Comp. St. p. 1592), relative to the powers and duties of receivers. By the latter act (section 76) it is the duty of the receiver to pass upon and allow or disallow claims and notify the claimant, who by section 78 (cf. also P. L. 1921, p. 724) may have the receiver's determination reviewed.

Ordinarily therefore it is contemplated that the receiver, with the assistance of his counsel, shall dispose of such matters. In important questions, where the receiver and his counsel find themselves in doubt, especially if the question involves a number of claims, the advice of the court may properly be sought informally; but the receiver must still perform his statutory duties and the claimants have their statutory rights. I doubt the efficacy of such proceedings as the present to bar such rights. However, since the questions have been argued at length, 1 will indicate my views.

1. The receiver should of course classify the claims filed with him. They should be classified as "allowed" and "disallowed"; and the "allowed" claims should be classified as to whether they have been allowed as "preferred" claims or merely "general claims"; also as to whether they are actual or contingent. Moreover the preferred claims should be further divided into classes, where it appears that there are, or may be, questions of priority amongst them. These classifications should be embodied in the receiver's report (under section 74, Corp. Act) after the time for filing claims has expired, and subsequent changes, if any, noted in subsequent reports. It is often impossible, and seldom necessary, to determine questions of priority amongst preferred claims until the time for distribution approaches. Then such questions should be determined by the receiver and embodied in a report, so that the same may be made the basis of an order of distribution, after notice and opportunity to all interested parties to be heard if they dispute the correctness of the receiver's determination.

In the present case the receiver has not filed any report as such, although much of the matter, with certain classifications of claims, is appended in a schedule annexed to his petition in this proceeding. There is no determination of priority amongst the classes, nor is there sufficient information before this court to enable the court to make a comprehensive determination of such priorities. I can only indicate to the receiver in a general way that his determination should prefer, first (since there are apparently no claims under chattel or other mortgages under section 84 of the Corp. Act), the claims, if any, of laborers and workmen; second, judgment creditors, if any, whose judgments have become a lien upon the property of the company (Doane v. Millville Ins. Co., 45 N. J. Eq. 274, at 282, 17 A. 625, and section 86, Corp. Act); and lastly the general or un-preferred creditors.

This applies only to the general assets of the company. There may be creditors who have liens upon certain portions of the assets or who are entitled to preference as regards certain funds. The determination (and report) of the receiver should include, not only the priority of payment as to these, but also the extent or amount of the property or funds to which their liens extend or are limited. A judgment creditor, even in the absence of execution issued, may have a lien on lands. Gallagher v. True Am. Pub. Co., 75 N. J. Eq. 171, 71 A. 741, 138 Am. St. Rep. 514.

Whether or not there are any such in the present case does not appear. In the schedule annexed to the receiver's petition are listed two judgments against the defendant company; but it is not stated whether execution issued on either, nor does it appear whether such judgments are entitled to lien or preference, or are deprived thereof, under P. L. 1919, c. 208, § 2, nor does it appear whether or not the company had any real estate. The receiver seems not to have filed any inventory—at least I find none in the files—except a paper captioned and indorsed "affidavit," which contains a mere unitemized statement of cash receipts and disbursements, the total value of certain bonds, and the total aggregate of claims presented. No one examining the files would ever think of finding an inventory or report under such a title. Certain claims by attorneys are also listed, but it does not appear whether or not any of them are entitled to, or claim, lien or preference under the statute relating to such lien.

Argument has been had at some length as to one special fund, in regard to which liens or preferences are claimed by certain creditors. This is the $50,000 fund of securities deposited by the company with the commissioner of banking and insurance, under and in compliance with the provisions of P. L. 1920, c. 213, p. 410. Here, again, for some "strange reason, there is no mention of the facts in the receiver's petition, nor in anything else filed in the proceedings; no mention of the fund, nor that special claims are made to it, nor by whom, nor the nature of such special claims and the facts on which they are based. However, there seems no doubt as to what the main facts are, these being universally admitted on the argument, so that for present purposes I may assume them as properly before me.

It thus appears that the securities in question are now in the hands of the receiver; that claim is made of lien thereon by the holders of two judgments against the company, both apparently by the holders of judgments against policy holders, of whom one apparently has issued execution and levy against the fund prior to the injunction in this suit; that claim is also made thereto by a number of persons holding judgments against policy holders, but who have not obtained judgments against the company.

The statute referred to provides that the deposit shall be made ...