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stay of any proceeding in which an insolvent insurer is obligated to defend a
party.
Kentucky
Kentucky Central Life Insurance Company v. Stephens, 897 S.W.2d 583 (Ky.
1995). In this case the trial court had approved the sale of the assets of
Kentucky Central Life Ins. Co. and ordered its liquidation over the objection
of its Board of Directors. On appeal, the Supreme Court of Kentucky
declared that due process does not always require a trial or strict application
of evidentiary rules, especially under special statutory proceedings. The
court held that the shareholders’ substantive or procedural due process
rights had not been violated in that they were granted extensive access to
information, had hired experts, and had fully participated in the hearings.
Although the Insurance Commissioner’s plan of rehabilitation affected the
shareholders’ property rights, the court concluded that it did not do so
arbitrarily. In keeping with the reasoning that a state in exercising its police
powers may reasonably interfere with contractual relations and commercial
freedoms of private parties, the court held that the Commissioner’s plan,
which included an infusion of capital from outside investors and an
assumption reinsurance agreement which would provide that a viable
insurer receive some company assets in return for the assumption of primary
liability for the policies, was within the powers afforded to the Commissioner
and did not violate the shareholders’ due process.
Minor v. Stephens, 898 S.W.2d 71 (Ky. 1995). The Supreme Court of
Kentucky held that the due process clause did not restrict the state’s
reasonable exercise of its police power in furtherance of the public interest,
even though such laws may interfere with contractual relations and
commercial freedoms of private parties. The nonvoting shareholders argued
that the trial court erred when denying their motion for the appointment of
an official committee to protect their interests. They claimed to have not
been informed as to the progress of the case by the companies board of
directors, which is permitted by statute to resist liquidation. The court
stated that it was not enough that the Commissioner’s plan affected
shareholder property rights, but instead, the shareholders must show that it
did so arbitrarily. A court, when determining if the process was adequate,
must consider the private interests affected, the governmental interests
affected, and the fairness and reliability of the existing procedures and
probable value of additional safeguards.
Illinois People ex rel. Palmer v. National Bankers Ins. Co. of Lincoln, 369 Ill. 605, 17
N.E.2d 579 (1938). The Illinois Supreme Court upheld the liquidation provisions
of the new 1937 insurance code, which was substantially a reenactment of the
1925 law, which itself had been held to be valid and constitutional.
Ward v. Farwell, 97 Ill. 593 (1881). The constitutionality of the 1874 liquidation
article was upheld against challenges of (1) impairment of contract, (2) that the
standard of "hazardous to the policyholders, creditors and public" was
indefinite, (3) that the act is ex post facto as respects "financial conditions"
occurring before 1874, (4) the lack of trial by jury, which was not appropriate
for the statutory legal action in the nature of an equitable remedy, and (5) a
lack of due process since a full hearing is provided although stockholders are
not typically necessary parties to the procedure.
Iowa
Hager v. Doubletree, No. 88‐581 (S. Ct. Iowa, May 17, 1989) (WESTLAW, IA‐CS,
52259). The insurance commissioner, as liquidator of an insolvent carrier, sued
several nonresident defendants to recover unpaid premiums. The defendants