Warner Ins. Co. v. Commissioner of Ins.

• Decision Date: 09 January 1990
• Citation: 548 N.E.2d 188,406 Mass. 354
• Parties: WARNER INSURANCE COMPANY v. COMMISSIONER OF INSURANCE et al. 1
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 188

548 N.E.2d 188

406 Mass. 354

WARNER INSURANCE COMPANY v. COMMISSIONER OF INSURANCE et al. ¹

Supreme Judicial Court of Massachusetts Suffolk.

Argued Sept. 14, 1989.

Decided Jan. 9, 1990.

David I. Finnegan, Boston, for plaintiff.

Jon Laramore, Asst. Atty. Gen. (Thomas A. Barnico, Asst. Atty. Gen., with him) for the Commissioner of Ins. et al.

Robert W. Mahoney, Michael R. Heyison, Mark G. Matuschak and Deborah J. Hart, Boston, for Com. Auto. Reinsurers, amicus curiae, submitted a brief.

Before LIACOS, C.J., and WILKINS, ABRAMS, LYNCH and O'CONNOR, JJ.

ABRAMS, Justice.

Warner Insurance Company (Warner) challenges a decision of the Commissioner of Insurance (Commissioner) ² revoking its license to write insurance in Massachusetts after finding that a private settlement agreement and several insurance statutes had been violated. Warner argues that (1) the Commissioner lacked jurisdiction to interpret the settlement agreement to which he was a party or to adjudicate his own claim that the agreement had been violated; (2) the settlement agreement does not apply to Warner's operation in Massachusetts; (3) even if it does apply, Warner has not breached the agreement; and (4) any breach of the agreement by Fireman's Fund Insurance Companies ³ does not warrant revocation of Warner's license. We agree with Warner that the Commissioner's expertise does not extend to the interpretation of the agreement. We therefore remand the case to the single justice with an instruction that she transfer the case to Superior Court for resolution of the factual disputes and consideration of the legal issues.

We summarize the undisputed facts. On July 1, 1987, claiming it could no longer profit from the sale of insurance in Massachusetts and without giving any prior notice, representatives of Fireman's Fund informed the Commissioner and Commonwealth Automobile Reinsurers (CAR), ⁴ that Fireman's Fund had deliberately allowed its licenses to expire, and that Fireman's Fund considered itself to be no longer licensed to write insurance in Massachusetts. Fireman's Fund representatives also informed CAR that Fireman's Fund no longer considered itself a member of, or servicing carrier for CAR.

The Division of Insurance (division) advised Fireman's Fund that it could not unilaterally abandon the Massachusetts market on less than one day's notice and renewed Fireman's Fund licenses for the following policy year. On July 3, 1987, the division filed suit in Superior Court and obtained an order temporarily restraining Fireman's Fund from surrendering its insurance licenses and terminating its insurance business in Massachusetts without first fulfilling its responsibilities as an insurer and a CAR servicing carrier, as required by statute and CAR's Rules of Operation. On July 10, 1987, the restraining order was continued by stipulation until further order of the court.

Between July 3 and November 13, 1987, the division, CAR, and Fireman's Fund engaged in settlement negotiations. Initially, Fireman's Fund proposed either (1) to settle its obligation to CAR by paying $25,000,000 and withdrawing completely from the Massachusetts insurance market; or (2) to pay CAR $75 million and withdraw only from the automobile insurance market. Negotiations quickly focused on the first proposal.

On October 14, 1987, with negotiations at an impasse, Fireman's Fund filed suit in Superior Court challenging the Commissioner's power unilaterally to renew its licenses, and claiming that it was no longer a member of CAR and owed no financial obligation to CAR.

On November 13, 1987, the seven companies constituting Fireman's Fund, CAR, and the Commissioner signed an agreement to settle the two lawsuits. Stipulations of dismissal with prejudice were simultaneously executed and filed in the Superior Court. The court entered judgments of dismissal in both cases.

Immediately prior to the agreement's execution, the Commissioner met privately with Joseph Brown, vice chairman of Fireman's Fund, who testified at the administrative proceeding that he assured the Commissioner that Fireman's Fund would not try to maintain the business it was leaving behind. Brown testified that he "commented to [the Commissioner] that at some point in the future we intended to once again be represented in ... Massachusetts to be able to write the commercial business" but not personal automobile insurance. According to Brown, the Commissioner responded, "When that time comes, we will have to talk about it." The administrative record shows that Brown did not question the Commissioner about his response or seek a clarification as to the Commissioner's understanding of the agreement.

In a second meeting attended by representatives of all of the parties, the Commissioner indicated that, at the earlier meeting, Brown had promised to seek approval before returning to Massachusetts. According to testimony in the record, Brown did not dispute this account.

Paragraph one of the settlement agreement provides that, "[a]s of the date of this Agreement, Fireman's Fund will no longer be licensed to issue or to sell insurance policies of any kind in the Commonwealth and shall not issue or sell insurance policies without a license." Paragraph four required Fireman's Fund to pay $45,000,000 to CAR in complete satisfaction of its obligations and liabilities to CAR for policy years 1987 and 1988.

The settlement agreement contains mutual clauses, releasing the parties from all claims that were or could have been raised prior to the agreement. The agreement includes an integration clause stating that it "represents the full and entire agreement between the parties, superseding any other prior or contemporaneous written or oral agreements or understandings...." The agreement expressly states that the Commissioner retains full statutory and regulatory authority over Fireman's Fund's reinsurance and surplus lines, which were unaffected by the agreement.

Following execution of the settlement agreement, Fireman's Fund "dismantled its entire operation in Massachusetts by severing relationships with its 375 agents, terminating some 600 employees, ... allow[ing] all of the policies written in Massachusetts to expire," and paying $45,000,000 to CAR, as required by the settlement agreement. On September 29, 1988, National Surety Corporation (NSC), a wholly-owned subsidiary of Fireman's Fund and a party to the settlement agreement, purchased Warner, an Illinois insurance corporation licensed in Massachusetts to write most insurance, but not motor vehicle insurance. At that time, Warner had no business, no employees, and no policyholders in Massachusetts.

On October 12, 1988, the division commenced an administrative action pursuant to G.L. c. 30A, c. 175, §§ 5 and 22H, c. 176D, and 801 Code Mass.Regs. § 1.01(6)(d), ordering Warner to show cause why the Commissioner should not revoke Warner's license to write insurance in the Commonwealth for alleged violations of the insurance statutes. The division was allowed to amend its order to show cause to add Fireman's Fund.

After an evidentiary hearing, the Commissioner issued a decision revoking Warner's license. The Commissioner ruled that the plain language of the settlement agreement (1) required Fireman's Fund to completely withdraw from the Massachusetts market; (2) prohibited Fireman's Fund from directly benefiting from the transaction of insurance business in Massachusetts, "such benefit being the ability to profit directly from the sale of insurance in Massachusetts"; and (3) obligated Fireman's Fund to receive the approval of the Commissioner before returning to the Commonwealth. He ruled that the agreement's meaning also could be "determined from the evidence pertaining to events surrounding the negotiation and execution of the settlement agreement."

The Commissioner ruled that Fireman's Fund exercises pervasive control over Warner's operation, and that any insurance sold by Warner inures to the direct benefit of Fireman's Fund, and that "Fireman's Fund is effectively issuing and selling insurance policies in Massachusetts in a manner which violates the Settlement Agreement." He concluded that, because the Commissioner had not given approval for Fireman's Fund's acquisition and operation of Warner, this constituted a breach of the settlement agreement, as well as the covenant of good faith and fair dealing implied in the agreement by law. Finally, he concluded that this breach of the settlement agreement constituted a violation of G.L. c. 175, §§ 5 and 22H, requiring revocation of Warner's license to write insurance in the Commonwealth. ⁵

On June 30, 1989, pursuant to G.L. c. 175, § 5, Warner commenced the present action for review of the Commissioner's decision by a single justice of this court. ⁶ On July 18, the single justice stayed revocation of Warner's license pending determination of the case and reserved and reported the case without decision to the full court.

Relying on Federal cases, Warner asserts that jurisdiction to interpret the settlement agreement and adjudicate the breach of contract claim lay in the Superior Court and not in the Commissioner's own administrative proceeding, because that court retained inherent "authority over the underlying claim and [had] discretion to reopen the claim or to adjudicate and enforce its settlement remedy" pursuant to Mass.R.Civ.P. 60(b)(6), 365 Mass. 828, 829 (1974). See, e.g., Dankese v. Defense Logistics Agency, 693 F.2d 13, 16 (1st Cir.1982); Aro Corp. v. Allied Witan Co., 531 F.2d 1368, 1371 (6th Cir.), cert. denied, 429 U.S. 862, 97 S.Ct. 165, 50 L.Ed.2d 140 (1976); Kelly v. Greer, 334 F.2d 434, 436-437 (3d Cir.1964). But see Fairfax Countywide Citizens Ass'n v. County of Fairfax, 571 F.2d 1299, 1306 (4th Cir.), cert. denied, 439 U.S. 1047, 99 S.Ct. 722, 58 L.Ed.2d 706 (1978), finding "no independent basis for asserting jurisdiction over the contract dispute." Warner's reliance on ...