Wright v. Sullivan Payne Co., 91-SC-287-DG

• Citation: 839 S.W.2d 250
• Decision Date: 03 September 1992
• Docket Number: No. 91-SC-287-DG,91-SC-287-DG
• Parties: Elizabeth WRIGHT, Commissioner of Insurance for the Commonwealth of Kentucky, as Liquidator for Delta America Re Insurance Company, Appellant, v. SULLIVAN PAYNE COMPANY, Appellee.
• Court: United States State Supreme Court (Kentucky)

Page 250

839 S.W.2d 250

Elizabeth WRIGHT, Commissioner of Insurance for the Commonwealth of Kentucky, as Liquidator for Delta America Re Insurance Company Appellant, v. SULLIVAN PAYNE COMPANY, Appellee.

No. 91-SC-287-DG.

Supreme Court of Kentucky.

Sept. 3, 1992.

As Modified on Denial of Rehearing Nov. 19, 1992.

John S. Palmore, James L. Gay, Kevin M. McGuire, Stanton L. Cave, Jackson & Kelly, Lexington, for appellant.

Winifred L. Bryant, Richard E. Fitzpatrick, Lexington, for appellee.

REYNOLDS, Justice.

The issues for decision are: (1) whether, within the limitation of the due process clause of the Fourteenth Amendment, appellee, an Iowa corporation, has, by its activities and business relationship with Delta America Re Insurance Company, a Kentucky corporation now in receivership, rendered itself amenable to proceedings in the courts of Kentucky exacted by state statutes, KRS 304.33-010 et seq.; and (2) whether the Kentucky Commissioner of Insurance was acting in an individual capacity as the liquidator of Delta.

The case arises from liquidation proceedings which the Kentucky Insurance Commissioner instituted by an action in Franklin Circuit Court placing Delta America Re Insurance Company (Delta) involuntarily into liquidation on September 13, 1985, by order of Franklin Circuit Court. The statutes, cited as the Kentucky Insurers Rehabilitation and Liquidation Law, provide a comprehensive manner of regulating, rehabilitating and liquidating insurers.

The cast includes:

Delta America Re Insurance Company (Delta) is a Kentucky domiciled insurance corporation, with its principal offices, records and personnel located in New York City, from which all business was conducted. Delta, which did both domestic and foreign business, was not engaged in any activity in the Commonwealth until the Kentucky Department of Insurance, by an order of liquidation, removed all New York records and necessary employees to Louisville in order that termination procedures could be more easily accomplished. Prior to the liquidation proceedings, Delta was engaged in the business of providing reinsurance to direct underwriters. The expanse of its business included the retroceding of a portion of the risk to retrocessionaires. Additionally, it would, itself, accept risks retroceded to it from other reinsurers. This is considered a complex business due, in part, to the multiplicity and diverse exposures of accepting or limiting insurance risk.

The appellant, who is the named Commissioner of Insurance (Liquidator), is the court appointed liquidator of Delta.

American Home Assurance Company is a New York corporation, with its principal office in New York City. This company was a direct underwriter, and being a writing company of insurance policies, it was known as a cedent because it shared or ceded a portion of its premiums and a portion of its risk to an assuming company.

Appellee, Sullivan Payne Company (Sullivan), is an Iowa corporation, with its predecessor having been incorporated in the state of Washington and its principal offices located in Seattle, Washington. Sullivan maintained no offices, agents or employees in Kentucky, nor was it licensed to transact business therein. Sullivan served as an intermediary, however, which was a trained participant in the reinsurance business and facilitated the placement of insurance coverage and the preparation of formal contracts (known as treaties) between the insurer and the reinsurer. It served as a conduit for the payment of premiums between the insurer and the reinsurer as well as remitting loss payments between the parties. Compensation for its services is in the form of a brokerage commission on the premiums paid by the reinsured to its reinsurer.

As of the date that Delta was placed into liquidation, Sullivan was holding $2,917,657.39 paid by American Home in connection with its treaty with Delta. The sum of money was claimed by both the Liquidator and American Home. A September 15, 1985, order of Franklin Circuit Court was served upon Sullivan and it provided in part:

That the officers, directors, trustees, policy holders, agents and employees of Delta Re and all other persons, including but not limited to claimants, plaintiffs and petitioners who have claims against Delta Re, are permanently enjoined and restrained from bringing or further prosecuting any action at law, suit in equity, special or other proceeding against the said corporation (i.e. Delta Re) or its estate, or the Commissioner and his successor in office, as Liquidator thereof, or from making or executing any levy upon the property or estate of said corporation or from in any way interfering with the Commissioner or any successor in office, in his possession or in the discharge of his duties as Liquidator thereof, or in the liquidation of said corporation.

Neither claimant is shown to have had title to the monies, but was asserting rights thereto. Sullivan, in a resolution attempt, sought to legally determine the party entitled to the money it held. Subsequently, Sullivan filed an action under the federal interpleader act in the New York Federal Court and tendered $2,917,657.39 for deposit and asserted the business conducted between all parties had been transacted in New York and they were also subject to that state's jurisdiction. After receiving a copy of the complaint, the Liquidator sought and was granted, ex parte, by Franklin Circuit Court, a temporary restraining order against Sullivan. The New York Federal Court placed the interpleader action in abeyance until a Kentucky court resolved the jurisdictional issue as to Sullivan.

Thereafter, the Liquidator instituted a civil action both against Sullivan and other nonresident intermediaries as well as a nearly identical action only against Sullivan. Therein it sought to collect the monies held by the intermediaries and these cases were removed to the U.S. District Court for the Eastern District of Kentucky and consolidated. The reasoned opinion and nonfinal order of the federal court held that it did not have personal jurisdiction over Sullivan and noted that if the federal court cannot, consistent with due process, obtain personal jurisdiction, then the state court is likewise incapable of obtaining such jurisdiction.

Franklin Circuit Court, upon the Liquidator's motion, found Sullivan in contempt for instituting the interpleader action and for violating its September 1985 restraining order. The trial court determined, without analysis, that it had personal jurisdiction over Sullivan pursuant to both KRS 454.210 and KRS 304.33-040(5) and a $50,000 penalty for contempt was levied against the broker. The contempt order, upon appeal, was reversed by the Court of Appeals and we granted discretionary review.

The Liquidator, on appeal to this Court, maintains that the broker had sufficient contact, ties and relations with Kentucky which subjected it to Kentucky jurisdiction with respect to the liquidation of Delta. Reliance is based upon the Kentucky Liquidation Act (KRS 304.33-040 ) which provides:

(5) Personal jurisdiction, ground for. In addition to other grounds for jurisdiction provided by the law of this state, a court of this state having jurisdiction of the subject matter has jurisdiction over a person served in an action brought by the receiver of a domestic insurer or an alien insurer domiciled in this state:

(a) If the person served is obligated to the insurer in any way as an incident to any agency or brokerage arrangement that may exist or has existed between the insurer and the agent or broker, in any action on or incident to the obligation; ...

Thus, it is claimed that all persons obligated to Delta as a result of an agency relationship are subject to the jurisdiction of the liquidation court. It is stated that needless dissipation of a Liquidator's estate would occur otherwise, and Sullivan could have foreseen regulatory actions to be taken by Kentucky in regard to a Kentucky Commissioner's liquidation of a Kentucky insurer.

Although Franklin Circuit Court relied in part upon the Kentucky Long Arm Statute, KRS 454.210, for exercising jurisdiction over nonresidents, we consider that the statute extends personal jurisdiction over nonresidents only to the limits of the Constitution's due process clause. Davis H. Elliot Co., Inc. v. Caribbean Utilities Co., Ltd., 513 F.2d 1176 (6th Cir.1975). The burden of proof to establish personal jurisdiction falls upon the plaintiff. American Greetings Corp. v. Cohn, 839 F.2d 1164 (6th Cir.1988). This record discloses that the broker engaged in no activity subjecting it to coverage under the Long Arm Statute nor does the Liquidator raise any contacts, ties or relations that occurred in Kentucky.

The Liquidator's renewed argument that the Kentucky Liquidation Act extends jurisdiction of the liquidation court to persons obligated to the insurer as a result of an agency relationship is distinguishable herein. Irrespective of the number of times the Liquidator has asserted the existence of an agency relationship, there are insufficient facts of record, other than a verified application for a restraining order, that asserts that Sullivan was an agent, and this allegation has, in fact, been sufficiently rebutted. Agency is a legal conclusion to be reached only after analyzing relevant facts. Given every fact alleged, there is still insufficiency for a legal conclusion of agency. The burden of proving agency is on the party alleging its existence. Cincinnati Insurance Company v. Clary, Ky., 435 S.W.2d 88 (1968). Were Sullivan an agent, the question arises as to whether KRS 304-33.040 facially applies. Knickerbocker Agency, Inc. v. Holz, 4 N.Y.2d 245, 173 N.Y.S.2d 602, 149 N.E.2d 885 (1958) is clearly distinguished.

The reviewing courts have looked in vain for a treaty designating Sullivan as Delta's agent. There is no authority for the Liquidator's assertion that Sullivan, as an intermediary, acted...