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eview the actions of the insurance commissioner while the commissioner is
operating the seized company. The courts may not dictate or outline general
policy or course of conduct for the insurance commissioner because that
outline is dependent on the statutory provisions. The judiciary may check
abuses of the commissioner's discretion in following statutory provisions for
the rehabilitation of a seized company. The commissioner is not acting as an
agent of the courts and the court's power of discretion vis‐à‐vis the insurance
commissioner is curtailed by the commissioner's statutory powers and the
statutes governing the management of insurance companies and rehabilitation
proceedings.
Plan of Rehabilitation
U.S. Supreme International Life Ins. Co. v. Sherman, U.S. 346, (1923), affirming, 291 Mo. 139,
236 S.W. 634 (1921). A receiver was appointed for an insolvent insurer, and a
number of shareholders and certificate holders proposed a plan of
rehabilitation which would provide in part for the certificate holders to
contribute additional funds and in return receive stock. The plan was approved
by the Missouri state court and the company was allowed to continue in
business for four more years when another solvent company merged with it
and all its obligations. The court held that those who had agreed to the plan
did not act on behalf of all certificate holders and thus, these later holders
were not bound by the cancellation of the certificates.
Eighth Circuit National Surety Corp. v. Williams, 110 F.2d 873 (8th Cir. 1940), cert. denied, 311
U.S. 674. Where a New York corporation, contracted with the insurance
commissioner as rehabilitator of an insolvent insurance company to assume
liabilities, excluding those losses occurring prior to a judgment of insolvency,
the court would not invalidate the contract on the ground that the corporation
received practically all the assets of the old company and should be held liable
for its debts, in view of evidence that corporation received assets of
approximate market value of $11,000,000 and the old company's assets had an
approximate market valuation of $32,000,000.
Arkansas
Baldwin‐United Corp. v. Garner, 283 Ark, 385, 678 S.W.2d 754 (1984). The
insurance commissioner, as receiver of three insolvent insurance companies
owned by one corporation, proposed a rehabilitation plan which was approved
by the court. The parent corporation appealed the plan's provisions that: (i)
the rehabilitation court had exclusive jurisdiction over the assets of the
companies, and (ii) the rehabilitation court would refuse to honor a judgment
obtained in any other forum. In affirming the lower court's decision, the
Supreme Court of Arkansas announced that nothing contained in the
McCarran‐Ferguson Act or the Bankruptcy Act prohibits a state from
determining the rights of an insurance company's creditors. Furthermore, the
appellate court added, the lower court properly ordered that all claims to the
companies' assets be adjudicated in the rehabilitation court.
Mendel v. Garner, 283 Ark. 473, 678 S.W.2d 759 (1984). Policyholders of an
insolvent carrier appealed a provision in the rehabilitation plan that cut off
their rights to surrender their policies for the cash surrender value. In
upholding the plan, the Supreme Court of Arkansas held: "The rehabilitation of
insurance companies pursuant to state insolvency statutes does not impair the
obligation of contracts." 678 S.W.2d at 761.