Unisys Corp. v. Texas Life, Acc., Health & Hosp. Service Ins. Guar. Ass'n

• Decision Date: 27 March 1997
• Docket Number: No. 03-96-00167-CV,03-96-00167-CV
• Citation: 943 S.W.2d 133
• Parties: UNISYS CORPORATION; Mellon Bank, N.A., as Trustee of the Unisys Employee Savings Thrift Trust; Marathon Oil Company; and National City Bank, Appellants, v. TEXAS LIFE, ACCIDENT, HEALTH & HOSPITAL SERVICE INSURANCE GUARANTY ASSOCIATION, Appellee.
• Court: Texas Court of Appeals

Page 133

943 S.W.2d 133

UNISYS CORPORATION; Mellon Bank, N.A., as Trustee of the Unisys Employee Savings Thrift Trust; Marathon Oil Company; and National City Bank, Appellants, v. TEXAS LIFE, ACCIDENT, HEALTH & HOSPITAL SERVICE INSURANCE GUARANTY ASSOCIATION, Appellee.

No. 03-96-00167-CV.

Court of Appeals of Texas Austin.

March 27, 1997.

Rehearing Overruled May 8, 1997.

David

L. Orr, Kuperman, Orr, Mouer & Albers, P.C., Austin, for Marathon & National City Bank.

Daniel C. Bitting, Scott, Douglass, Luton & McConnico, L.L.P., Austin, for Mellon Bank, N.A.

Joann Hyle, Pepper, Hamilton & Scheetz, Philadelphia, PA, for Unisys Corporation.

Gary L. Lewis, George, Donaldson & Ford, L.L.P., Austin, for Appellee.

Before ABOUSSIE, KIDD and B.A. SMITH, JJ.

ON MOTION FOR REHEARING

BEA ANN SMITH, Justice.

We withdraw our previous opinion and judgment issued December 12, 1996 in this cause and substitute the following opinion.

We must decide whether certain annuity contracts benefitting Texas employees of Unisys Corporation and Marathon Oil Company are covered under the Texas Life, Accident, Health and Hospital Service Insurance Guaranty Association Act ("Guaranty Act"). ¹ Appellants Unisys Corporation and Mellon Bank, N.A., as trustee for Unisys Employee Savings Thrift Trust (collectively, "Unisys"), and Marathon Oil Company and National City Bank as trustee for The Marathon Oil Company Thrift Plan (collectively, "Marathon") appeal from the trial court's grant of appellee Texas Life, Accident, Health & Hospital Service Insurance Guaranty Association's (the "Association") motion for partial summary judgment and denial of Unisys's and Marathon's motion for partial summary judgment. The trial court rendered judgment declaring the Association had no statutory obligations to Unisys and Marathon under the Guaranty Act in the wake of Executive Life Insurance Company's ("Executive Life") insolvency. We will affirm the judgment of the trial court.

BACKGROUND

The Guaranty Act establishes the Association, a group of solvent insurers, to protect holders of certain forms of group and individual life, accident, and health insurance policies and annuity contracts in the event the issuing insurance company becomes insolvent. Guaranty Act §§ 2, 6. The Association maintains a guaranty fund by assessing its member insurers. Id. § 9. Holders of contracts or policies issued by an insolvent insurer may seek coverage from the Association. Id. § 3.

Unisys, a Pennsylvania corporation, and Marathon, an Ohio corporation, established similar employee benefit pension plans under federal ERISA requirements (the "plans"). See 29 U.S.C. § 1002(34) (West 1985 & Supp.1996). ERISA requires all assets of these employee benefit plans to be held in trust by one or more plan trustees. 29 U.S.C. § 1103(a), (c) (West 1985 & Supp.1996). Unisys's trustee is Mellon Bank, N.A., of Pennsylvania; Marathon's trustee is National City Bank of Cleveland (the "bank trustees"). Employees participating in the plans contributed earnings into consolidated funds; they then could direct their contributions into various types of investments. ² The employees would reap any gains but also suffer losses attributable to their chosen investments. The bank trustees provided account statements showing the amount contributed, the type of investment chosen by the employee, and other account information. Upon retirement, an employee could direct the bank trustee of its plan to withdraw an amount from the consolidated funds and purchase an individual annuity account which would provide a fixed rate of return. ³ In order to guarantee the fixed interest rates, in 1987 and 1988 the bank trustees deposited accumulated contributions of participating employees with Executive Life by purchasing Group Limited Deposit Pension Contracts. ⁴ In April 1991, the California Insurance Commission placed Executive Life in conservatorship; in December 1991 it declared the company insolvent. Neither Unisys nor Marathon, nor their bank trustees, were incorporated in Texas, but at the time of Executive Life's insolvency, over seven hundred Unisys and Marathon employees residing in Texas had invested over $2,644,000 in Executive Life group annuity contracts. The employees have been compensated for about seventy percent of their contributions pursuant to a rehabilitation plan approved by the California Superior Court. Unisys and Marathon sought compensation from the Association for approximately $793,000 in uncompensated losses of their employees resulting from Executive Life's insolvency. ⁵

In January 1993, the Board of Directors of the Association unanimously adopted a resolution that the Association would provide coverage for Executive Life Guaranteed Interest Contracts (GICs) as unallocated annuity contracts as defined by the Guaranty Act. The Association interpreted its resolution to exclude from coverage the Unisys and Marathon contracts held by the nonresident bank trustees. The Association also entered into an Enhancement Agreement, part of the rehabilitation plan, involving Aurora National Life Assurance Company. Under this agreement state guaranty associations could fulfill their statutory obligations to covered Executive Life policy holders by making payments to enable Aurora to reinsure and assume Executive Life's contracts.

Due to controversy precipitated by its resolution, the Association sought a declaratory judgment that it owed no obligation under the Guaranty Act to the Unisys or Marathon plans. The trial court granted the Association's motion for partial summary judgment, finding that the Association owed Unisys and Marathon no statutory obligation and properly excluded Unisys and Marathon plan participants from coverage under the Enhancement Agreement. ⁶ Unisys and Marathon appeal.

DISCUSSION

In two points of error, Unisys and Marathon assert that the trial court erred in granting the Association's motion for summary judgment and denying Unisys's and Marathon's motion for summary judgment. In its judgment, the trial court declared that (1) the GICs at issue in this case are "unallocated annuity contracts" as defined by the Guaranty Act; (2) the "contract holder" of the GICs was the bank trustee; and (3) the Association is not required to provide coverage for any GICs held by a bank trustee who was not a Texas resident at the time of Executive Life's impairment. As the parties agree there is no factual dispute, we must determine whether the court erred as a matter of law in determining the Executive Life contracts are not covered by the Guaranty Act. See Johnson v. City of Fort Worth, 774 S.W.2d 653, 656 (Tex.1989).

The parties do not dispute that the contracts at issue are group annuity contracts which are generally covered under the Guaranty Act. The gist of Unisys's ⁷ multifarious appeal is that the contracts at issue are allocated annuity contracts owned by the participating employees, who are Texas residents, not unallocated annuity contracts owned by the nonresident bank trustees. Unisys frames its appeal within the statutory language in effect in 1991, when Executive Life was declared insolvent. The Association's motion for summary judgment and the trial court's judgment incorporate language used in the subsequent amendment (the "1992 Act"), ⁸ which ordinarily would apply only in proceedings initiated against an insurer declared insolvent on or after January 1, 1992. Executive Life was declared insolvent on December 6, 1991. Although an election clause ⁹ permitted the Association to assume its responsibilities under the 1992 Act, the record does not support such an unequivocal election in this cause. Deposition testimony shows the Association followed the 1992 Act for procedural purposes but conducted its substantive analysis of its obligations under the act in effect in 1991. We, therefore, conclude that the Association did not "elect to assume its responsibilities" under the 1992 Act. Although we agree with Unisys that the prior act governs, we conclude that under either version of the act group annuity contracts must be held or owned by Texas residents in order to be covered. Because we agree with the trial court that Unisys's and Marathon's plans were not owned or held by Texas residents, either enactment leads to the result that the Association is not obligated to Unisys and Marathon. In an abundance of caution, this opinion will refer to both enactments. We will also address Unisys's argument that the court should have liberally construed the statute in order to compensate these Texas employees.

I. The Guaranty Act

Section 3(1) of the Guaranty Act in effect when Executive Life was declared insolvent states that the act applies to

(a) annuity contracts, including unallocated annuity contracts except those specifically excluded in this Act ...; and

(b) with respect to such policies and contracts:

(ii) to those persons who are owners of or certificate holders under those policies or contracts and who are residents of this State at the time such insurer becomes an impaired insurer....

The Act unambiguously covers annuity contracts held or owned by Texas residents. The trial court found that the contracts were unallocated annuity contracts held by the bank trustees. Unisys contends on appeal that the contracts at issue are allocated annuity contracts held or owned by the resident employees.

A. The Executive Life contracts at issue are unallocated annuity contracts.

The Act defines an "unallocated annuity contract" as

any annuity contract or group annuity certificate that is not issued to an individual person including guaranteed interest contracts ..., except to the extent any annuity benefits under that contract or certificate are guaranteed to an individual person by an insurer.

Id. § 5(14) (emphasis added). Unisys refuses to concede that these contracts are guaranteed interest contracts (GICs) because the Act specifically designates GICs as unallocated...