Title: State ex rel Neidig v. Superior National Ins. Co.
Citation: N/A
Docket Number: S54315
State: Oregon
Issuer: Oregon Supreme Court
Date: November 29, 2007

FILED: November 29, 2007
IN THE SUPREME COURT OF THE STATE OF OREGON
OREGON INSURANCE GUARANTY ASSOCIATION,
an association,
Petitioner on Review,
v.
SUPERIOR NATIONAL INSURANCE COMPANY,
a California corporation,
and COMMERCIAL COMPENSATION CASUALTY COMPANY,
a California corporation,
Respondents on Review.
(00C-18554; CA A124825; SC S54315)
En Banc
On review from the Court of Appeals.*
Argued and submitted May 3, 2007.
John L. Langslet, of Martin Bischoff Templeton Langslet &amp; Hoffman LLP,
Portland, argued the cause and filed the brief for petitioner on review.  With him on the
brief was Justin M. Thorp.
James N. Westwood, of Stoel Rives LLP, Portland, argued the cause and filed the
brief for respondents on review. 
BALMER, J.
The decision of the Court of Appeals is reversed.  The judgment of the circuit
court is affirmed.
*Appeal from Marion County Circuit Court, Paul J. Lipscomb, Judge. 208 Or App
1, 144 P3d 1030 (2006).
BALMER, J.
This ancillary receivership action concerns a $10.6 million deposit that an
insurance company made with the Department of Consumer and Business Services
(DCBS).  The case presents the issue whether DCBS may use the statutory deposit of one
insurer to satisfy the statutory liabilities of another insurer that has become insolvent.  Our
resolution of that issue in this case requires us to consider three legal questions:  first,
whether an insurer that indirectly reinsures another insurer -- by reinsuring the insurer's
direct reinsurer and therefore acting as a "second-level" reinsurer -- is a "reinsurer" for the
purposes of the insurance code, making its statutory deposits subject to control by DCBS; 
second, whether DCBS may use the deposits of a reinsurer to pay the claims of the
insolvent insurer even though neither the insurer nor the reinsurer had indicated to DCBS
that the reinsurer's deposits were intended to cover the insurer's liabilities; and, third,
whether an insurer's violation of the insurance code justifies piercing the corporate veil
between the insurer and another insurer that is under common ownership and control with
the first insurer.  
The trial court concluded that the deposit was available to DCBS to pay the
obligations of the insolvent insurer.  The Court of Appeals reversed.  State ex rel Neidig
v. Superior National Ins. Co., 208 Or App 1, 144 P3d 1030 (2006).  For the reasons set
out below, we reverse the decision of the Court of Appeals and affirm the judgment of the
trial court.
I.  BACKGROUND
In reviewing a decision of the Court of Appeals that is an appeal from a suit
in equity, this court may review de novo or may limit its review to questions of law.  ORS
19.415(4); see O'Donnell-Lamont and Lamont, 337 Or 86, 89, 91 P3d 721 (2004), cert
den, 543 US 1050 (2005) (recognizing court has that choice, electing to review child
custody proceeding de novo).  In this case, as in O'Donnell-Lamont, we elect to review
the record de novo, because we conclude that the Court of Appeals erred in some respects
in determining the legal issues that must be addressed and that, once they are identified,
those legal issues require additional or different factual findings.  In the interest of a
prompt resolution of this case, we address those factual issues, rather than remanding to
the Court of Appeals or the trial court for further proceedings in that regard.  As our
discussion will make clear, however, we appreciate the close attention that the trial court
and the Court of Appeals gave to the factual and legal issues in this complex case, and we
agree with many of their findings and conclusions.  
A. Context:  Required Deposits by Insurance Companies
A brief discussion of the regulatory scheme for private workers'
compensation insurers will establish the legal context for the factual details and
procedural history of this case.  Every workers' compensation insurer in Oregon (other
than the State Accident Insurance Fund Corporation) must post certain deposits with
DCBS.  ORS 731.628.  Those deposits, known as "Schedule P" deposits, are based on the
premiums earned by the insurer and the insurer's loss experience in Oregon.  Every
workers' compensation insurer must make a deposit of at least $100,000.  At the
beginning of each calendar year, each insurer calculates its required Schedule P deposit
based on a formula that includes the insurer's premium revenue and loss experience
through the end of the last calendar year and, if necessary, makes an additional deposit. 
ORS 731.628(1)(b).  The insurer must file the Schedule P form showing that calculation
by March 1 of each year and make any additional required deposit by March 31.  The
deposits are intended to cover the insurer's obligations under the policies that it has
written in Oregon.  They are intended to ensure that, if the insurer becomes insolvent and
is unable to pay claims, DCBS will be able to pay any claims brought under those
policies.  ORS 731.608(3).
An insurer may reduce the amount otherwise required for its Schedule P
deposit if it reinsures a portion of its liability with another insurer (the "reinsurer") and the
reinsurer makes a deposit with DCBS.  ORS 731.628(1)(b).  In that circumstance, the
insurer may take a credit against its required deposit in the amount of the deposit that the
reinsurer makes.  ORS 731.628(3).  As a result, the deposits made by an insurer and any
reinsurers must add up to the total amount required by the formula set out in ORS
731.628(1)(b).  
B. Superior Group's Acquisition of Insurance Companies Doing Oregon Business
This case arises out of the insolvency of defendant Commercial
Compensation Casualty Company (CCCC) and other insurance companies under common
ownership with CCCC. (1)  On de novo review, we find the following facts.  In 1998,
Superior National Insurance Group, Inc. (Superior Group), an insurance holding
company, acquired several commonly-owned insurance companies, including CCCC,
California Compensation Insurance Company (CalComp), and Business Insurance
Company (BICO).  Under the prior owner, CCCC had written few policies in Oregon,
while BICO had substantial workers' compensation insurance business in the state. 
Superior Group, in turn, sold BICO's name and its certificate to write workers'
compensation insurance in Oregon, but not BICO's assets or liabilities, to an unrelated
company, Centre Insurance Group (Centre).  
To remove BICO's assets and liabilities before that sale, Superior Group
transferred the assets to another company owned by Superior Group, defendant Superior
National Insurance Company (SNIC).  Those assets included $10.6 million in securities
that BICO previously had deposited with DCBS in connection with the workers'
compensation insurance policies that it had issued in Oregon, as required by Schedule P
and ORS 731.628.  As to BICO's liabilities, another Superior Group subsidiary, CalComp,
agreed to reinsure all of BICO's pre-1999 liabilities, i.e., those based on the policies that
BICO had written in Oregon before 1999.  CalComp, in turn, reinsured its own
reinsurance obligation as to those liabilities with its affiliated company, SNIC.   
In May 1999, BICO and SNIC reported those transfers and agreements to
DCBS on their respective Schedule P forms.  Superior Group's cover letter stated that
"SNIC is the ultimate 100% reinsurer [of BICO's pre-1999 liabilities]," and BICO's
Schedule P form noted that "[SNIC] through [CalComp]" was the reinsurer of those
liabilities. (2)  Thus, as of May 1999, SNIC owned the $10.6 million deposit that had
been made with respect to BICO's pre-1999 liabilities and also was the ultimate reinsurer
of those liabilities.
In December 1999, the Superior Group companies entered into a second
transaction with Centre, the company that had purchased BICO.  The Superior Group
companies made certain payments to Centre (as part of a much larger transaction) and
Centre, in turn, agreed to release CalComp's and SNIC's reinsurance obligations with
respect to the pre-1999 policies issued by BICO (with the exception of any liabilities in
excess of $180 million).  In that transaction, Centre also agreed to, and did, deposit
securities with a market value of $10.2 million with DCBS to cover the pre-1999
liabilities that it had assumed.  As a result, SNIC's $10.6 million deposit no longer was
required under ORS 731.648 because SNIC no longer had any obligations with respect to
the pre-1999 policies, except in the unlikely event that claims under those policies
exceeded $180 million.
C. The Pooling Agreement 
In 1999, but with an effective date of December 31, 1998, CCCC,
CalComp, SNIC, and two other insurers owned by Superior Group entered into what they
denominated an intercompany pooling agreement (the "pooling agreement").  The
agreement was signed on behalf of each of the five signatory companies by the same
individual, J. Chris Seaman, who was the executive vice president and chief financial
officer of each company.  Each company was owned, directly or indirectly, by Superior
Group and each had identical officers and directors (except for the formality that one New
York resident served on CCCC's board, but not on the other boards, because CCCC had
been domesticated in New York).
The pooling agreement covered all workers' compensation insurance
policies written by the five companies.  It had two primary effects.  First, the four parties
other than CalComp agreed to "cede and transfer" all the losses and expenses related to
those policies to CalComp, and CalComp agreed to "reinsure[] and assume[]" all those
losses and expenses.  Second, CalComp then agreed to "retrocede[] and transfer[]" back
to the other four companies, and each of those companies agreed to "reinsure and assume
from CalComp," an agreed-upon percentage of the pooled business. (3)  Those
percentages were based on the relative financial surplus of each company at the time the
agreement was signed, as set out in the agreement, and the pooling agreement provided
that they could change each year depending on the changing financial surplus of each
company.
For 1999, CalComp's percentage of the "pooled business" was 62 percent,
SNIC's was 22 percent, and CCCC's was two percent.  (The other two commonly
controlled companies, neither of which is involved in the issues here, had the remaining
14 percent.)  The net effect of the pooling agreement, as it relates to this case, was that
CalComp agreed to reinsure 100 percent of CCCC's losses and expenses, and SNIC
agreed to reinsure 22 percent of CalComp's reinsurance obligations, including CalComp's
reinsurance of CCCC. 
Schedule P states that "[i]f a workers' compensation pool is used, [the filing
insurer or reinsurer] must list participants and their corresponding amounts" and it
requires a filing insurer or reinsurer to identify "ceding companies and reserves." 
However, neither CCCC nor SNIC ever disclosed the pooling agreement to DCBS on 
their Schedule P forms or in any other way.
D. Insurance Operations and Schedule P Filings
Following the sale of the BICO name and certificate of authority, CCCC
began to write more workers' compensation insurance in Oregon, including renewals of
policies that BICO had written before 1999.  Because of its limited business in Oregon
before 1999, CCCC had deposited only $445,000 with DCBS, and only $185,000 of that
amount was a deposit for its workers' compensation business, the rest of the deposit being
related to other forms of insurance business that it conducted within Oregon.  CCCC's
Schedule P for 1998, filed in March 1999, indicated that its required deposit for workers'
compensation insurance was only $130,000.  During 1999 and 2000, however, CCCC
increased its Oregon business, earning premiums of about $5.1 million in 1999 and $3.6
million in the first half of 2000.  CCCC, however, did not file a Schedule P for 1999
when it was due in March 2000 and never made any additional deposit.  
DCBS wrote to CCCC in March 2000 asking the company to file its
Schedule P, but CCCC failed to respond.  DCBS again wrote to CCCC in August 2000,
and again received no response. (4)  CCCC continued to write workers' compensation
insurance policies in Oregon until August 18, 2000.  In October 2000, after CCCC had
become insolvent, as discussed below, CCCC, in connection with discussions with DCBS
over the liabilities of CCCC and its affiliated insurers, finally filed a Schedule P for 1999
and a separate Schedule P for the period ending June 30, 2000.  The latter Schedule P
calculated CCCC's deposit requirement as of June 30, 2000, to be $6.6 million.  CCCC
did not make any deposit to cover that obligation, and CCCC did not identify SNIC's
deposit as a "credit" for that obligation. 
For its part, SNIC filed a Schedule P for 1998 in May 1999.  That schedule
reflected SNIC's ownership of the $10.6 million deposit that had been transferred from
BICO to SNIC.  However, like CCCC, SNIC did not file a Schedule P for 1999 when that
form was due in March 2000.  In August 2000, Stewart Levine, the statutory accounting
manager for both CCCC and SNIC, sent a letter to DCBS enclosing a Schedule P for
SNIC for 1999.  That form indicated that SNIC had received no premiums, paid no losses,
and conducted no workers' compensation insurance business in Oregon.  The form failed
to disclose the pooling agreement or indicate that, because of the pooling agreement,
SNIC was a second-level reinsurer for CCCC.  The form calculated that SNIC's required
deposit was the statutory minimum of $100,000 that was required to do business in
Oregon.  Levine's letter noted that SNIC had an existing deposit of $10.4 million, (5)
and it requested that DCBS release those funds (except for the required $100,000
minimum deposit) to SNIC.
DCBS rejected SNIC's request and demanded that SNIC and all of its
affiliated companies submit Schedule P forms indicating their liabilities as of June 30,
2000.  Although Levine did not mention anything about CCCC to DCBS in connection
with his efforts to recover the SNIC deposit, in an internal Superior Group memo
prepared in connection with DCBS's request he wrote:  "Superior National -- Oregon
owes us $10,293,957.  Commercial Compensation [i.e., CCCC] -- We owe Oregon
$6,570,498.  These calculations are as of June 30, 2000." 
E. Insolvency and Bankruptcy
The reason that CCCC and SNIC both had failed to file their required
Schedule P forms in March 2000 became apparent to DCBS later in the year.  In March
2000, the California Department of Insurance had placed SNIC, CalComp, and several of
Superior Group's other insurance subsidiaries into conservatorship because of the
precarious financial position of some of those companies. (6)  In late April 2000,
Superior Group entered federal bankruptcy proceedings.  In September 2000, a California
court ordered the liquidation of the assets of CCCC, SNIC, and the other Superior Group
insurance companies.
II.  LEGAL PROCEEDINGS
A. Commencement of the Action and Pre-trial Orders
DCBS brought this ancillary receivership action against CCCC and SNIC
(the two Superior Group subsidiaries authorized to conduct insurance business in Oregon) 
in October 2000, soon after the liquidation order was entered by the California court.  See
ORS 734.200 (authorizing court to direct DCBS director to take possession of Oregon
property of foreign insurer, to appoint director as ancillary receiver, and to order
liquidation of foreign insurer's Oregon assets); ORS 734.190 (authorizing DCBS director
to apply for court order directing conservation of Oregon assets of foreign insurer).  At
that time, as noted, SNIC had on deposit the $10.6 million related to workers'
compensation insurance and reinsurance, and CCCC had on deposit $185,000 related to
its workers' compensation insurance business and $260,000 related to its other Oregon
insurance business.  Defendants did not enter an appearance or contest the appointment of
the receiver, and the trial court entered an order appointing the DCBS director as ancillary
receiver.
After CCCC was declared insolvent in September 2000, the Oregon
Insurance Guaranty Association (OIGA) assumed responsibility for administering claims
and paying covered claims on workers' compensation insurance policies that CCCC had
issued.  See ORS 734.510 to 734.710 (establishing OIGA and setting out its authority). 
From January 1 through July 31, 2001, OIGA paid about $2.6 million for claims and
expenses related to CCCC's policies.  After the California Department of Insurance
revealed the existence of the pooling agreement to DCBS in June 2001, DCBS sought,
and the trial court issued, in September 2001, an order releasing funds from SNIC's
Schedule P deposit to reimburse OIGA for part of those payments.  DCBS asserted that
SNIC had agreed in the pooling agreement to reinsure 22 percent of CCCC's business. 
The trial court order authorized DCBS to disburse $585,233 (22 percent of the amount
that OIGA already had paid out) from the SNIC deposit to OIGA and also to disburse to
OIGA, on an ongoing basis, 22 percent of the amounts that OIGA continued to pay on
CCCC's policies. (7)  CCCC and SNIC did not appear in opposition to the DCBS
motion. (8)
In December 2001, OIGA filed a motion to intervene in the ancillary
receivership action, which the trial court granted.  After OIGA's intervention, OIGA,
rather than DCBS, maintained this action.  OIGA's petition on intervention claimed that
the SNIC deposit should be available to reimburse OIGA for all of its payments to
CCCC's insureds, rather than only the 22 percent of the OIGA payments that the trial
court had authorized in its September 2001 order.  Among other things, OIGA asserted
that the court should treat CCCC and SNIC as the same entity and make SNIC's deposit
available to cover claims on CCCC's policies as if the deposit had been made by CCCC. 
CCCC and SNIC answered the petition on intervention, denying the operative allegations.
B. Rulings Below
Following a bench trial, the trial court concluded that SNIC was liable for
all of CCCC's Oregon workers' compensation insurance losses and expenses.  The trial
court held that SNIC had agreed to provide reinsurance to CCCC in the pooling
agreement and that, as a reinsurer, SNIC's $10.6 million deposit was available to cover
CCCC's liabilities under ORS 731.608(3).  The court also found that SNIC and CCCC
were commonly controlled, that those companies' violations of Oregon statutes warranted
piercing the corporate veil, and that SNIC's assets, including the deposit, were available
to satisfy CCCC's Oregon insurance obligations. (9)
Defendants appealed, and the Court of Appeals reversed on both grounds. 
The Court of Appeals concluded that, under the pooling agreement, SNIC was not a 
"reinsurer" of CCCC.  Neidig, 208 Or App at 18-23.  Rather, in its view, CalComp was a
reinsurer of CCCC, and SNIC was a reinsurer of CalComp.  The Court of Appeals noted
that a reinsurer of a reinsurer -- a second-level reinsurer such as SNIC in this case -- 
sometimes is referred to as a "retrocessonaire."  Id. at 5 n 3.  As we describe in greater
detail below, the Court of Appeals determined that ORS 731.608(3), which authorizes
DCBS to use the statutory deposits of "insurers" and "reinsurers" to pay claims related to
insolvent insurers, did not authorize DCBS to use the assets of SNIC, a retrocessionaire,
to pay claims on behalf of CCCC.  
The Court of Appeals also rejected OIGA's veil-piercing theory.  The court
held that one requirement for piercing the corporate veil was that the party whose assets
are being claimed must have engaged in improper conduct that "has an aspect of moral
culpability."  Id. at 14.  The court concluded that, although both CCCC and SNIC violated
the insurance code by failing to file their Schedule P forms or make security deposits
when required, those failures did not rise to the level of misconduct required to pierce the
corporate veil.  Similarly, the Court of Appeals concluded that the transfer of BICO's
deposit to SNIC, rather than to CCCC (which generated premiums by renewing workers'
compensation insurance policies initially sold by BICO), was supported by legitimate
business reasons and did not demonstrate the kind of manipulative, deceptive conduct that
would justify piercing the corporate veil.  Id. at 15-18.  
OIGA filed a petition for review, which we allowed.
III.  ANALYSIS
Because piercing the corporate veil "is an extraordinary remedy which
exists as a last resort, where there is no other adequate and available remedy to repair
plaintiff's injury," Amfac Foods v. Int'l Systems, 294 Or 94, 103, 654 P2d 1092 (1982), we
first examine whether plaintiff's legal claim provides an adequate remedy.  See, e.g., City
of Salem v. H.S.B., 302 Or 648, 655, 733 P2d 890 (1987) (challenges to "corporate form
and its limited liability" will not be considered "unless it is demonstrated to be an absolute
necessity").
A. SNIC's Liability as a Reinsurer of CCCC: Definition of "Reinsurer"
On review, OIGA argues that SNIC's deposit is available to pay CCCC's
liabilities because SNIC was a reinsurer of CCCC. (10)  As discussed previously, ORS
731.628 provides that workers' compensation insurers must make statutory deposits, and
an insurer may take a credit against the required deposit to the extent that it reinsures part
of its liability and its reinsurer makes an offsetting deposit.  ORS 731.608(3) provides that
the Schedule P deposits of both an insurer and its reinsurers can be used to pay losses and
loss expenses if the insurer becomes insolvent:
"Deposits made by insurers and reinsurers in this state under ORS
731.628 shall be held for the payment of compensation benefits to workers
employed by insured employers * * * to whom the insurer has issued a
guaranty contract under ORS chapter 656."
OIGA first argues that the deposit at issue here is available to it under ORS
731.648(1)(b), which provides that a required deposit by a reinsurer "shall be held as long
as there is outstanding any liability of the reinsurer with respect to which the deposit was
made."  OIGA also asserts that, under the pooling agreement, CalComp reinsured all of
CCCC's liability and SNIC, in turn, reinsured a portion of those liabilities.  Therefore,
OIGA argues, SNIC is a "reinsurer" of CCCC for purposes of ORS 731.608(3) and ORS
731.628 -- albeit a "second-level" or indirect reinsurer -- and its "deposits" are available
to pay the policies that CCCC issued. (11) 
For OIGA to prevail on either of those arguments, it first must be correct in
asserting that a second-level reinsurer, such as SNIC, is a "reinsurer" for purposes of
ORS 731.608(3) and ORS 731.648(1)(b).  The Court of Appeals rejected OIGA's
argument at that threshold level, holding that SNIC was not a "reinsurer" for purposes of
those statutes.  Neidig, 208 Or App at 22-23.  We begin with that issue.
Oregon statutes do not provide a definition of "reinsurer," and the Court of
Appeals based its conclusion on the statutory definition of "reinsurance."  ORS 731.126
provides:
"'Reinsurance' means a contract under which an originating insurer,
called the 'ceding' insurer, procures insurance for itself in another insurer,
called the 'assuming' insurer or the 'reinsurer,' with respect to part or all of
an insurance risk of the originating insurer."
The Court of Appeals viewed that definition as limiting a "reinsurer" to the "assuming"
insurer in a contractual relationship between that insurer and an originating or "ceding"
insurer.  Neidig, 208 Or App at 22.  The court concluded, "That definition does not
address indirect obligations between ceding insurers and retrocessionaires, and we are not
authorized to expand it to do so."  Id. at 22-23.  OIGA argues that the Court of Appeals
erred in interpreting "reinsurer" to exclude second-level reinsurers, or retrocessionaires. For the reasons that follow, we agree with OIGA.
ORS 731.126, set out above, itself uses three different terms to refer to an
entity that provides reinsurance:  "reinsurer," "another insurer," and "assuming insurer." 
That statute states that the act of "reinsurance" is a transaction in which an insurer cedes
some or all of its insurance obligations and risk to "another insurer."  Contrary to the
Court of Appeals' conclusion, the text of ORS 731.126 does not exclude from the
definition of "reinsurer" an insurer that provides second-level reinsurance.  A "reinsurer"
is simply an insurer that engages in a certain kind of insurance -- insuring another insurer. 
Nothing in logic or in ORS 731.126 suggests that the term "reinsurer" should be limited
to an insurer that insures another insurer and must exclude an insurer that insures a
reinsurer.  
Indeed, as the Court of Appeals noted earlier in its opinion, "The reinsurer
of a reinsurer is referred to as a retrocessionaire."  Neidig, 208 Or App at 5 n 3 (emphasis
added).  Retrocession -- second-level reinsurance -- has a long history in the insurance
industry, and although the term retrocessionaire sometimes is applied to distinguish
second-level reinsurance from a first-level reinsurance, the term "reinsurance" typically
refers to both.  See, e.g., Second Russian Ins. Co. v. Miller, 268 US 552, 554, 45 S Ct 593,
69 L Ed 1088 (1925) ("retrocession * * * is, contracts reinsuring reinsurers"); Security
Ins. Co. of Hartford v. TIG Ins. Co., 360 F3d 322, 324 (2d Cir 2004) (retrocession
agreement is reinsurance); ReliaStar Life Ins. Co. v. IOA Re, Inc., 303 F3d 874, 876, 878-79 (8th Cir 2002) (examining "retrocessional coverage" as a "reinsurance contract[]");
Transcontinental Underwriters Agency, S.R.L. v. American Agency Underwriters, 680
F2d 298, 299 nn 1-2 (3d Cir 1982) (using retrocession and reinsurance interchangeably).
For the same reasons, the term "reinsurer" ordinarily includes both first-level reinsurers and second-level reinsurers or retrocessionaires.  An example from one
treatise illustrates the use of the term "reinsurer" in a discussion of rights among multiple
insurers:
"Reinsurers are free to enter into 'retrocessional agreements' whereby
the reinsurer assigns all or a portion of the risk to another reinsurer.  In
other words, such an agreement is reinsurance of reinsurance.  Where this
occurs, the potential liabilities of the respective reinsurers can become
more difficult to assess."
Steven Plitt, Daniel Maldonado, and Joshua D. Rogers, 1A Couch on Insurance 3d §
9:18, 9-59 (2003) (footnotes omitted) (emphases added).
For those reasons, we conclude that OIGA's claim against the SNIC deposit
is not barred simply because SNIC is a second-level reinsurer of CCCC, rather than a
direct, or first-level, reinsurer.  That conclusion, however, does not necessarily mean that
OIGA may recover the SNIC deposit, and we turn to the other statutes and contractual
arrangements upon which OIGA's claim is based.
B. SNIC's Liability as a Reinsurer of CCCC:  SNIC's Deposit and the Insurance Code
As noted above, OIGA first argues that it may recover the SNIC deposit under ORS 731.648(1)(b), which provides that the deposit shall be held "as long as there
is outstanding any liability of the reinsurer with respect to which the deposit was made." 
(Emphasis added.)  That statute does not assist OIGA because the SNIC deposit was not
made "with respect to" the CCCC obligations at issue here.  Rather, the deposit was made
by BICO before Superior Group purchased BICO in 1998 and was made to cover BICO's
pre-1999 insurance obligations.  The obligations here are for policies issued by CCCC in
1999 and 2000.  Although many of those policies were renewals of BICO's pre-1999
policies, the SNIC deposit was not "made" "with respect to" any SNIC liability (or even
any CCCC liability) for those policies, as those terms are used in ORS 731.648(1)(b). 
Even when the deposit was described in SNIC's May 1999 Schedule P filing, it was
designated as a deposit for BICO's pre-1999 obligations, not for CCCC's obligations.
OIGA's second argument is based on the pooling agreement and two
statutes, ORS 731.628 and ORS 731.608(3).  Although it has various refinements, some
of which we discuss below, OIGA's argument, at bottom, is that this court should adopt
the trial court's conclusion that SNIC is a reinsurer of CCCC under the pooling agreement
and that the cited statutes permit "a reinsurer's deposit [to be] used to pay a ceding
insurer's compensation claims."  We held above that a second-level reinsurer -- a
"retrocessionaire" -- is a reinsurer for purposes of those statutes.  However, we disagree
with OIGA's assertion that those statutes allow it to use the SNIC deposit to cover all of
the CCCC losses.
ORS 731.628 provides, in part:
"(1) * * * [E]ach insurer [other than SAIF] that issues guaranty contracts to employers under ORS chapter 656 shall deposit with
[DCBS] * * *:
"* * * * *
"(b) An amount equal to the sum described in this paragraph less
credits for approved reinsurance that the insurer may take under subsection
(2) of this section. * * *
"* * * * *
"(2) Before an insurer may take a credit for reinsurance under
subsection (1)(b) of this section, the reinsurer must deposit an amount equal
to the credit to be taken.
"(3) An insurer may be allowed the credit referred to in subsection
(1)(b) of this section only when the reinsurer has deposited with the
department an amount equal to the credit." (12)
That statute describes deposits that an insurer that issues guaranty contracts
to employers "shall" make.  Contrary to OIGA's argument, it does not impose any deposit
obligation on a reinsurer of an insurer that issues such contracts.  Instead, it permits an
insurer to pay a smaller deposit if a reinsurer makes a deposit on behalf of the insurer.  An
insurer may take credit for reinsurance when its reinsurer makes a deposit, but nothing in
that statute requires a reinsurer to make any deposit.  Here, it is undisputed that SNIC
made no deposit related to its reinsurance of CCCC's liability, and CCCC's Schedule P for
1998 (filed in 1999) does not show CCCC taking any credit for any SNIC deposit.  
OIGA urges us to adopt the reasoning of the trial court, which concluded
that, because SNIC and CCCC failed to file Schedule P forms in 2000, they "should not
now be entitled to designate, after the fact, what credits should be applicable to which
entity * * *."  OIGA notes that defendants concealed CCCC's deficiency -- that is, the
Schedule P deposit that should have been made in March 2000 -- by failing to file a
Schedule P when required in March 2000 or to respond to inquiries from DCBS.  It is
undisputed that, if CCCC had filed an accurate Schedule P when it should have, it would
have been required to make a deposit in excess of $4.4 million. (13)  Moreover, when
SNIC filed its Schedule P in August 2000, almost six months after it was due, it did not
indicate that it had any insurance or reinsurance obligations for workers' compensation
insurance in Oregon.  Instead, SNIC requested return of its $10.4 million deposit on the
ground that it was far in excess of any deposit required of SNIC, and it failed to disclose
that the pooling agreement obligated SNIC to pay at least some of CCCC's losses.  When
asked why he filed a Schedule P in August 2000 for SNIC, but not for CCCC, Stewart
Levine, the manager of statutory accounting for SNIC, CCCC, and the other Superior
Group companies, testified that "the powers that be were interested in getting money
back, not giving money to somebody else."
The conduct described above, however, does not permit us to rewrite ORS
731.628 to impose a deposit obligation on a reinsurer.  OIGA's argument that that statute
somehow imposes such an obligation on every reinsurer is not well taken.  Reinsurers
may undertake contractual obligations to insurers through pooling agreements or other
instruments.  A reinsurer could make, or could agree by contract to make, a statutory
deposit on behalf of an insurer, although SNIC did not do so here.  But ORS 731.628
itself imposes no such obligation.
The pooling agreement and ORS 731.608(3) present a different issue.  ORS
731.608(3), as noted previously, provides, in part, "Deposits made by insurers and
reinsurers in this state under ORS 731.628 shall be held for the payment of compensation
benefits to workers employed by insured employers * * *."  OIGA argues that because
SNIC is a "reinsurer" under the pooling agreement and the deposit SNIC now owns was
made "under ORS 731.628," that deposit is available to pay all the CCCC obligations that
OIGA has taken over.  We disagree. 
OIGA's argument ignores the fact that a contract that creates a reinsurance
obligation -- here, the pooling agreement -- also may limit the extent of the reinsurer's
liability.  Here, that contract provided that CalComp (which is not a party to this case)
would reinsure 100 percent of CCCC's "losses" and "expenses."  CalComp then agreed to
retrocede to SNIC and SNIC agreed to "reinsure and assume from CalComp" 22 percent
"of the pooled business."  As discussed above, on the basis of the pooling agreement,
ORS 731.628, and ORS 731.648(4), the trial court in September 2001 authorized DCBS
to disburse $585,233.57 of the SNIC deposit to OIGA.  That amount was 22 percent of
the "losses" and "expenses" that OIGA had paid to insureds in connection with CCCC's
policies.  The September 2001 order further authorized the disbursement of additional
amounts to OIGA "representing 22 percent of payments made by the OIGA for [CCCC's]
losses and loss expenses."  As noted, defendants have not appealed the trial court's
September 2001 order. (14)
Here, however, OIGA argues that we should adopt the trial court's
conclusion following trial that, under the pooling agreement, SNIC was responsible for
100 percent of CCCC's losses.  The trial court summarized the basis for its conclusion as
follows:
"The Pooling Agreement did not segregate which individual business
liabilities SNIC reinsured, SNIC reinsured each of them 100%, up to a
maximum of 22% of the total pool.  Accordingly, SNIC's reinsurance
obligation can fairly be allocated to any portion of the pooled business that
SNIC reinsured, up to 22% of the total pool under the terms of the Pooling
Agreement."
Our analysis of the pooling agreement, however, does not support the trial
court's conclusion.  Contrary to the statement by the trial court, SNIC did not agree in the
pooling agreement to reinsure 100 percent of "each" individual "business liabilit[y]." 
Rather, under the pooling agreement, each of the participating companies agreed to "bear
the 'losses' and 'expenses' of the pooled business according to their applicable percentage
of such business."  (Emphasis added.)  The pooling agreement defined "pooled business"
as all "losses" and "expenses."  It then defined "losses" as "losses incurred on insurance to
which this Agreement applies" -- workers compensation insurance policies issued by the
participating companies -- and "expenses" as "loss adjustment expenses incurred, whether
allocated or unallocated," "other underwriting expenses," and "general and administrative
expenses."  Under the mechanism established by the pooling agreement, SNIC, contrary
to the trial court's statement, did not agree to pay 100 percent of the "business liabilities"
up to 22 percent of the total pool; instead, it agreed to pay 22 percent of the "losses" and
"expenses" of the pooled business.  Here, the relevant losses and expenses are those of
CCCC.  Under the pooling agreement, SNIC agreed to pay 22 percent of those losses, as
the September 2001 order correctly states.  For that reason, we conclude that the trial
court erred in its later determination, following trial, that the pooling agreement obligated
SNIC to pay 100 percent of CCCC's losses and expenses. (15)
Nevertheless, OIGA argues that the SNIC deposit is available to pay 100
percent of CCCC's Oregon obligations because ORS 731.608(3) provides that a
reinsurer's deposits made under ORS 731.628 "shall be held for the payment of
compensation benefits to workers employed by insured employers * * *."  OIGA reads
too much into the statute.  In this case, as discussed above, although the SNIC deposit
was made "under ORS 731.628," it was not made with respect to the reinsurance of the
CCCC policies for which OIGA now is responsible.  In that circumstance, the only
plausible basis for OIGA to claim the SNIC deposit is that SNIC is a reinsurer of CCCC. 
SNIC, of course, is a reinsurer of CCCC because of the pooling agreement, and, in the
absence of a deposit made with respect to CCCC's liabilities, that agreement both creates
and limits its reinsurance obligation.  OIGA has no greater right to the deposit under ORS
731.608(3) than the pooling agreement provides -- 22 percent of CCCC's losses and
expenses.
C. Piercing the Corporate Veil
In the alternative, OIGA argues that, because of the wrongful conduct of
SNIC and CCCC, we should ignore the separate legal identities of the two companies and
allow OIGA to recover from SNIC's deposit for claims that it has paid to CCCC's
insureds.  The trial court accepted OIGA's argument, holding that it was appropriate to
pierce the corporate veil that would otherwise protect SNIC from liability for CCCC's
obligations.  The Court of Appeals reversed, concluding that neither SNIC nor CCCC
engaged in conduct that was "improper" for purposes of piercing the corporate veil. 
Neidig, 208 Or App at 9-18.
1. The Amfac Test
The lower courts and the parties all rely on this court's decision in Amfac
Foods v. Int'l Systems, 294 Or 94, 108-09, 654 P2d 1092 (1982), where we discussed the
elements required to pierce the corporate veil:
"When a plaintiff seeks to collect a corporate debt from a shareholder by
virtue of the shareholder's control over the debtor corporation rather than on
some other theory, the plaintiff must allege and prove not only that the
debtor corporation was under the actual control of the shareholder but also
that the plaintiff's inability to collect from the corporation resulted from
some form of improper conduct on the part of the shareholder.  This
causation requirement has two implications.  The shareholder's alleged
control over the corporation must not be only potential but must actually
have been exercised in a manner either causing the plaintiff to enter the
transaction with the corporation or causing the corporation's default on the
transaction or a resulting obligation.  Likewise, the shareholder's conduct
must have been improper either in relation to the plaintiff's entering the
transaction or in preventing or interfering with the corporation's
performance or ability to perform its obligations toward the plaintiff."
(Footnote omitted.)  Although Amfac involved a corporate parent and a wholly owned
subsidiary, this court's cases make it clear that veil piercing also may apply to claims
against affiliated corporations.  See Abbott v. Bob's U-Drive et al, 222 Or 147, 161-62,
352 P2d 598 (1960) ("It is well established that where corporate affairs are confused with
those of the stockholders, a subsidiary or an affiliate corporation the corporate veil may
be lifted to protect persons whose rights have been jeopardized by the corporate device."
(Emphasis added.)). 
This court's decision in Amfac requires a plaintiff seeking to pierce the
corporate veil to prove that another entity actually controlled (or was under common
control with) the corporation, that the other entity used its control over the corporation to
engage in improper conduct, and that, as a result of the improper conduct, the plaintiff
was harmed. (16)  As this court recognized in Amfac, the test that the case established
and that is quoted above, "although easily stated, may not be easily applied."  Amfac, 294
Or at 111 n 18.  Indeed, each part of the test -- control, wrongful conduct, and causation --
can present close legal and factual questions that must be considered in reaching the
ultimate equitable determination as to whether the corporate veil can be pierced.  See
Fletcher Cyclopedia of the Law of Corporations § 41.10, 149-50 (2006 revised volume)
("Because there is no single factor that alone justifies piercing the corporate veil, a careful
review of the entire relationship between various corporate entities and their directors and
officers may reveal that such an equitable action is warranted." (Footnote omitted.)). 
2. Control
We begin with the issue of control.  Defendants argue that no evidence
supports OIGA's assertion that SNIC controlled CCCC or that CCCC and SNIC were
under the common control of a third party, at least to the extent required to pierce the
corporate veil.  As our reference to Abbott makes clear, however, this court has long
acknowledged that the corporate veil may be pierced not only to prevent one person or
corporation's wrongful use of a corporation that it controls to harm third parties, but also
to prevent affiliated corporations from being used in a similar way.  It is not necessary for
SNIC itself, rather than the ultimate parent (Superior Group), to have "controlled" CCCC.
It is sufficient if the two corporations were under actual common control and were
operated so that the improper use of corporate structures caused harm to a third party.
On de novo review, we find, as did the trial court, that SNIC and CCCC
were "operationally a single company for all practical purposes."  As noted, SNIC and
CCCC, both under the control of Superior Group, shared the same Oregon bank account,
office, board members, executive officers, legal counsel, investment managers,
accountants, and auditors.  Board meetings were held on the same day, and the minutes of
the meetings were identical for the two companies.  Those who worked at the Oregon
office were not clear which corporate entity actually employed them and they sometimes
held themselves out to insurance agent customers as employees of "Superior National
Insurance Group," although the workers' compensation policies that they wrote in Oregon
were policies of CCCC.  Finally, the officers that interacted with DCBS and determined
when to file required forms (including Schedule P forms), what to include on those forms,
and whether or not to make Schedule P deposits were the same for both
defendants. (17)
Under Amfac, potential control through stock ownership and identity of
corporate officers is not sufficient.  To pierce the corporate veil, the plaintiff must show
that control "actually ha[s] been exercised in a manner either causing plaintiff to enter the
transaction with the corporation or causing the corporation's default on the transaction or
a resulting obligation."  Amfac, 294 Or at 108-09.  Here, OIGA alleged that the common
owners of SNIC and CCCC caused CCCC to violate the insurance code, specifically
ORS 731.628, by failing to file an accurate Schedule P when required and to make the
required deposit.  On de novo review, we find that the evidence shows that those
commonly controlled companies violated the insurance code by not making the required
Schedule P filings.  Those filings, had they been made when required by the insurance
code and had they been accurate, would have demonstrated to DCBS that CCCC was
required to deposit additional millions of dollars as a condition of continuing to do
business in Oregon.  Because CCCC failed to file its Schedule P form when required,
DCBS did not know the extent of CCCC's workers' compensation insurance business in
Oregon in 1999 and 2000 or the fact that CCCC was at least $4.4 million short in its
required deposit.  Without knowledge of those facts, DCBS permitted CCCC to continue
to write insurance in Oregon until August 2000 -- creating insurance obligations that
could not be covered by CCCC's inadequate Schedule P deposit and that, when CCCC
was declared insolvent, had to be paid by OIGA.  We also find that the persons that
controlled both SNIC and CCCC caused CCCC to violate the insurance code by not
making the required deposit when it was due March 31, 2000 -- or at any later time. 
Although the facts just discussed demonstrate that SNIC and CCCC were
under common control to the extent required under Amfac, defendants argue that it is
common practice for an insurance holding company to control a number of different
subsidiary insurance companies.  They note that statutes, including ORS 732.548 to
732.582, provide for the regulation of such holding companies and assert that the
operations of those companies will be jeopardized if creditors or other plaintiffs can
pierce the corporate veil of one subsidiary insurance company and pursue the assets of an
affiliated corporation.  
Defendants' concern is misplaced.  The "control" contemplated by Amfac,
as discussed above, is not simply potential control or control of general operations, but
actual control over the specific conduct that led to the plaintiff's harm; therefore, even
when affiliated corporations share directors, officers, and facilities, the control required to
pierce the corporate veil is not necessarily present.  Moreover, the corporate veil can be
pierced only when the additional elements of improper conduct and causation are met, as
described below.  Nothing in Amfac or in our application of that case in this context
affects the ability of insurance holding companies or other corporations to structure their
operations in ways that allow them to take full advantage of the limited liability and other
benefits of the corporate structure.
3. Improper Conduct
The second element that must be proved to pierce the corporate veil is
improper conduct.  Amfac, 294 Or at 106.  And the relevant conduct is the conduct of the
controlling corporation or commonly controlled corporations, not the independent
conduct of the subsidiary or affiliated corporation.  Id. at 108 (analysis centers on "the
conduct of the shareholder sought to be charged, and the relationship between the
improper conduct and the creditor's claim.").  In Amfac, the court listed several examples
of "improper conduct," including inadequate capitalization; "milking" of a subsidiary
corporation through payment of excessive dividends to the parent; misrepresentation; and
the use of corporate subsidiaries or affiliates to evade regulatory statutes.  294 Or at 109-10.  
In this case, the Court of Appeals concluded that the examples given in
Amfac and other cases demonstrated that conduct is improper only if it "has an aspect of
moral culpability" and "manipulates or abuses the corporate form in some way, thereby
drawing funds away from the debtor corporation or conferring a benefit on the party
sought be charged."  Neidig, 208 Or App at 14-15.  The Court of Appeals drew the "moral
culpability" wording from Amfac's quotation of this court's earlier opinion in Schlecht v.
Equitable Builders, 272 Or 92, 97, 535 P2d 86 (1975), where this court identified the
"real underpinning" of Schlecht and other veil-piercing cases as whether there was
"'[s]ome form of moral culpability on the part of the parent corporation * * *.'"  Amfac,
294 Or at 108 (quoting Schlecht).  On review, OIGA argues that the Court of Appeals
erred in requiring a showing that the conduct was morally culpable, although it also
contends that, if moral culpability is required, SNIC's conduct here demonstrates moral
culpability.
OIGA is correct that the phrase "moral culpability," standing alone,
provides limited guidance to business entities, lawyers, and lower courts in determining
when a corporation's limited liability may be set aside and a creditor or other plaintiff be
allowed to seek recovery against a parent or affiliated corporation.  However, the context
in which Schlecht and Amfac used the phrase "moral culpability" makes it clear that the
term refers less to abstract notions of morality and more to dishonest or deceitful conduct
intended to harm a third party, whether or not that conduct violates a statute or other legal
obligation.  In Schlecht, for example, this court cited with approval cases finding
improper conduct when a corporation was used for the "perpetration of a fraud," "to
accomplish fraud or injustice," or in "bad faith * * *."  272 Or at 96-98 (citations and
quotations omitted; emphases in original).  Amfac, as noted, gave additional examples of
improper conduct that would justify piercing the corporate veil, including
misrepresentation that is short of fraud, "confusion or commingling of assets," and the
evasion of "federal or state regulation * * *."  294 Or at 110.  
As an illustration of improper conduct to evade government regulation, the
court in Amfac cited, among other cases, United States v. Reading Co., 253 US 26, 40 S
Ct 425, 64 L Ed 760 (1920).  There, the court considered a federal statute that prohibited
a railroad from transporting coal that the railroad had mined.  The defendant corporation
sought to avoid the statutory prohibition by establishing a separate railroad company and
coal company under common ownership.  Although the defendants did not violate any
other statute or legal standard, the court concluded that the form of organization was
being used to evade the federal statute and, therefore, ignored it.  253 US at 61-63. 
Amfac's citation to Reading further supports our conclusion that the use of the corporate
form to frustrate state or federal regulation can be sufficiently improper conduct, even
when there is nothing unlawful about the conduct itself.  In Reading, for example, that
conduct was the creation of a holding company that owned all the stock of a coal
company and of a railroad.  As used to describe cases such as Reading, the phrase "moral
culpability" emphasizes the fact that conduct may be improper for purposes of piercing
the corporate veil even if it is not "legally" culpable.   
Our cases thus do not establish "moral culpability" as a requirement in
addition to "improper conduct," and we do not read the Court of Appeals opinion as so
holding.  Rather, the Court of Appeals, like this court in Amfac, used "moral culpability"
as one way of describing the kind of improper conduct that is required to pierce the
corporate veil.  Understood in context, then, the Court of Appeals' use of the term "moral
culpability" was not erroneous.  That phrase narrows the range of illegal or tortious
conduct that can be considered "improper" for purposes of piercing the corporate veil, and
it also serves as a reminder that oppressive or manipulative conduct that uses a corporate
form to harm a creditor or evade regulation may be improper for those purposes, even if it
is not separately actionable.
With that background, we turn to the allegedly improper conduct in this
case.  We begin by noting that the Court of Appeals correctly rejected OIGA's assertion,
and the trial court's conclusion, that SNIC violated ORS 731.628 by transferring the
deposit at issue here from BICO to SNIC and then renewing the policies originally
written by BICO with CCCC, rather than with SNIC.  The Court of Appeals concluded
that "there was a legitimate business reason for renewing [BICO's] policies with CCCC
[in 1999]" and "there was no evidence that CCCC [or Superior Group] expected to
default on those policies when they were renewed * * *."  208 Or App at 17.  For that
reason, the Court of Appeals concluded that the evidence did not support the trial court's
conclusion that that conduct by SNIC or CCCC was improper.  Id.  Rather, as the Court
of Appeals correctly noted, "The conduct that is at the heart of this case is not the renewal
of the BICO policies on CCCC paper; it is the failure of CCCC to comply with its
Schedule P obligations with respect to those [insurance] policies [written in 1999 and
2000]."  Id.
The Court of Appeals next considered whether CCCC's failure to comply
with its obligations under ORS 731.628 for policies written after 1998 -- that is, to file the
Schedule P form when required in 2000 and to make the deposit required by statute -- was
improper conduct.  The Court of Appeals held that that conduct, "standing alone," was
"not the type of conduct that would justify the extraordinary remedy of piercing the
corporate veil."  Id.  We agree with that statement in abstract, but, on de novo review,
conclude that it is not consistent with the facts in this case.  In our view, the conduct of
SNIC and CCCC, taken together, with respect to the required Schedule P filings and
deposits, was improper.
The following facts support the conclusion that improper conduct by the
commonly controlled corporations, SNIC and CCCC, violated ORS 731.628.  As
described previously, SNIC and CCCC essentially operated as a single entity.  SNIC and
CCCC were required to file their respective Schedule P forms on March 1, 2000.  Neither
company did so.  If SNIC had made an accurate filing at that time, the filing would have
revealed to DCBS that SNIC had a deposit of about $10.6 million, that it no longer had a
reinsurance obligation for BICO's pre-1999 obligations, and that it now did have a
reinsurance obligation to CCCC.  As noted previously, if CCCC had made an accurate
filing at that time, it would have revealed that CCCC had done extensive business in
Oregon during 1999, that CCCC owed an additional deposit of about $4.4 million, and
that CCCC was reinsured, in part, by SNIC (and by other Superior Group companies). 
CCCC also violated Oregon law by failing to make that required additional deposit when
it should have by March 31, 2000.  Moreover, as far as can be determined from the
record, in the first quarter of 2000, CCCC likely had sufficient funds to make a deposit.
On March 30, 2000, DCBS sent a letter to CCCC requesting that it file its
Schedule P form that had been due on March 1.  On August 7, 2000, DCBS sent another
letter, again directing CCCC to make the required filing.  CCCC did not respond to the
DCBS letters, file its Schedule P form, or increase its Schedule P deposit.  Instead, it
continued to write workers' compensation insurance policies in Oregon until August 18,
2000.  CCCC violated Oregon law by failing to respond promptly and truthfully to the
requests for information from DCBS.  See ORS 731.296 (authorizing DCBS director to
inquire about insurers' activities, condition, and transactions, and requiring insurers to
respond "promptly and truthfully").
As noted previously, SNIC did file a Schedule P in August, indicating that
it had done no business in Oregon and requesting the return of the $10.6 million deposit. 
That filing was inaccurate and in violation of the insurance code because it did not
disclose, as Schedule P requires, that SNIC had reinsurance obligations to CCCC under
the pooling agreement.  It also did not disclose that SNIC was in conservatorship
proceedings in California.  See ORS 731.260 (prohibiting insurers from submitting to
DCBS any information known to be "false or misleading in any material respect").
On October 4, 2000, CCCC filed Schedule P forms for 1999 and the first
half of 2000.  The latter form indicated that CCCC owed a deposit of $6.6 million.  No
part of that deposit was ever paid.  Both of CCCC's forms were inaccurate in that they did
not disclose CCCC's obligations and benefits under the pooling agreement, as required by
Schedule P.  Indeed, DCBS did not learn of the pooling agreement until June 2001.
Although we agree with the general statement by the Court of Appeals that
one company's failure to file timely and accurate forms or to make required deposits
ordinarily would not constitute the kind of improper conduct required to pierce the
corporate veil, the facts in this case lead us to conclude that CCCC and SNIC, and the
individuals who controlled both of those companies, took those actions to evade
government regulation and deceive DCBS.  See Amfac, 294 Or at 110 (citing, as
examples of improper conduct, use of wholly-owned subsidiary "to evade federal or state
regulation"); see also Neidig, 208 Or App at 14-15 (summarizing Amfac examples as
demonstrating that improper conduct is that which "manipulates or abuses the corporate
form in some way, thereby drawing funds away from the debtor corporation or conferring
a benefit on the party sought to be charged.").
All of the actions described above, whether taken by SNIC or CCCC, were
taken by the same individuals.  The evidence demonstrates that those individuals made
the filings and deposits required by Oregon law only if and when they believed that it was
in the overall interest of the Superior Group companies and without regard to the
requirements that Oregon law imposed on SNIC and CCCC.  Levine's internal memo in
August 2000, stating that, as to SNIC, "Oregon owes us $10,293,957," while, as to
CCCC, "we owe Oregon $6,570,498" (emphases added) illustrates the common control of
the companies.  The wrongful use of those corporate entities to deceive DCBS was
further demonstrated when Levine contemporaneously filed a materially false Schedule P
for SNIC -- with a request for return of SNIC's deposit -- and failed to file a Schedule P
for CCCC.  As he testified when asked why he filed SNIC's Schedule P, but not CCCC's: 
"[T]he powers that be were interested in getting back money, not giving money to
somebody else. * * * We didn't want to give them money because we were being
conserved."  Defendants did not respond "promptly and truthfully" to the DCBS inquiries. 
Even the filings that were made were misleading, inaccurate, and untimely, in violation of
Oregon statutes.  We have little difficulty concluding, on these facts, that SNIC and
CCCC engaged in improper conduct that justifies piercing the corporate veil. (18)
4. Harm to OIGA
Defendants argue that, even if SNIC or CCCC engaged in improper
conduct, there is no connection between the improper conduct and any harm resulting to
OIGA, which was required to pay claims that CCCC failed to pay.  In particular,
defendants assert that CCCC's failure to file its 1999 Schedule P and the required security
deposit caused no harm.  Defendants state that CCCC filed an accurate Schedule P on
October 4, 2000, and that CCCC failed to make the required deposit of $6.6 million at
that time because of "lack of funds."  
Defendants ignore the fact that CCCC's Schedule P form was due on March
1, 2000.  Although the record does not contain financial statements as of that date, it does
contain an independent auditors' report setting out SNIC's financial condition as of
December 31, 1999.  That report also discussed CCCC's capital in comparison to the
amount of capital recommended by the National Association of Insurance Commissioners
(NAIC) and stated that CCCC "has capital in excess of any of the action levels."  (SNIC,
on the other hand, had capital at the "most adverse" level of the NAIC model.)  The
record also contains evidence that, as of early 2000, Superior Group had added $5.4
million to CCCC's capital in connection with its anticipated redomestication from New
York to California.  In other words, the record indicates that, near the time that it was
supposed to make its Schedule P filing and deposit, CCCC was not experiencing any level
of capital deficiency.
Moreover, defendants' claim that CCCC lacked funds to make any
deposit -- and that its violations of the insurance code therefore did not harm
OIGA -- ignores the common control of SNIC and CCCC and the failure of SNIC to file
its Schedule P form when it was due in March 2000.  If SNIC had made an accurate filing
at that time, the filing would have revealed to DCBS that SNIC was a reinsurer of CCCC
and that SNIC had $10.6 million on deposit with DCBS.  As noted previously, if CCCC
had made an accurate filing at that time, it would have revealed that CCCC had done
extensive business in Oregon during 1999 and that CCCC owed an additional deposit of
$4.4 million.  With that information, DCBS could have requested that CCCC and SNIC
agree that SNIC nominate part of its deposit pursuant to ORS 731.628 to meet CCCC's
deposit requirements; if defendants had declined that request, DCBS would have been
able to take remedial action to prevent any further harm (e.g., by ordering CCCC to stop
writing new policies in Oregon).  Instead, CCCC continued to write new workers'
compensation insurance policies in Oregon until August 18, 2000, and it did not make
any deposit to cover its additional statutory deposit obligation.
If defendants had complied with Oregon law, they would have made the
filings and the security deposits described above.  Like many other regulatory schemes,
insurance regulation relies on regulated companies that comply in good faith with clear
statutory requirements.  State regulators lack the resources to investigate immediately
every late filing or to audit the accounts of each regulated entity.  Here, two entities that
for all practical purposes operated as one company acted in bad faith to violate clear
regulatory statutes, deceive DCBS, and avoid making required deposits.  Because of that
improper conduct, DCBS permitted CCCC to continue to write millions of dollars of
additional workers' compensation insurance in Oregon -- resulting in additional losses for
OIGA.  
No evidence in the record supports defendants' assertion that CCCC simply
ran out of money in March 2000 -- no bank statement, no financial report of CCCC's
finances for that time period, no independent auditors' report for CCCC for 2000. 
Superior Group filed for bankruptcy in late April 2000, but as of March 2000, CCCC
continued to write policies and receive premiums in Oregon and a review of its 1999
year-end financial condition had identified no capital insufficiency.  While OIGA's
evidence that CCCC could have made a deposit when required in March 2000 was not
extensive, there was no contrary evidence.  We agree with the trial court that,
"Apparently, the real reason [CCCC] did not make the required deposit was not because
of its actual inability to pay.  Rather, it was because its officers were uncertain as to what
would happen when they were taken over by California's Conservation and Liquidation
Office and they wanted to conserve capital." (19)  Applying the test articulated in
Amfac, we conclude that defendants' conduct was "improper * * * in preventing or
interfering with [CCCC's] performance or ability to perform its obligations [here, its
statutory filing and deposit obligations] toward [DCBS,]"  294 Or at 109, and that that
improper conduct caused OIGA's injury.
IV.  CONCLUSION
For the reasons described above, we conclude that SNIC and CCCC were
under common control and were used to cause CCCC to violate ORS 731.628 and other
provisions of the insurance code.  We further conclude that that conduct was improper
and that it caused harm to OIGA.  We affirm the trial court's judgment that the corporate
veil between SNIC and CCCC is pierced with regard to SNIC's deposit with DCBS for
the purpose of reimbursing OIGA and DCBS for losses and expenses related to its
payment of claims by CCCC's insureds, as authorized by ORS 731.608(3), 734.630(2),
and 734.635.   
The decision of the Court of Appeals is reversed.  The judgment of the
circuit court is affirmed.
1. During some of the events described here, CCCC was named
Commercial Compensation Insurance Company.  For consistency, we
use the designation "CCCC" throughout this opinion.
2. It is noteworthy that SNIC disclosed its reinsurance
obligations with respect to BICO's pre-1999 liabilities in its
May 1999 Schedule P filing, yet never disclosed to DCBS the
reinsurance obligations that it undertook with respect to CCCC's
1999 and 2000 liabilities, as discussed further below.
3. We discuss below the meaning of "reinsure," "retrocede,"
and other terms in the pooling agreement.
4. There also is evidence in the record the DCBS communicated
with CCCC regarding its unfiled Schedule P in May, June, and
July. 
5. The deposit at issue in this case consisted of marketable
securities with a face value of $10.6 million.  The market value
of the securities fluctuated, and the parties sometimes gave the
market value, rather than the face or book value, of the
securities.  Those differences are not relevant to the issues in
this case.
6. As noted previously, CCCC had been domesticated in New York
and, because of the timing of its change of domestication to
California, California regulators did not formally place CCCC
into conservatorship until June 9, 2000.  However, CCCC operated
as if under conservatorship after March 2000.
7. The order also authorized DCBS to transfer to OIGA the
$185,000 deposit that CCCC had made with respect to its workers'
compensation insurance business.
8. Nor did defendants, on appeal, assign error to the trial
court's order regarding the 22 percent payments.
9. Because the trial court ruled for OIGA on the two theories
discussed, it did not reach a breach of contract claim that OIGA
had asserted.  That claim was based on settlement discussions
between DCBS and defendants.  OIGA contended that the parties had
reached an agreement under which defendants would transfer $6.6
million from SNIC's deposit to satisfy CCCC's deposit obligation
and that defendants had breached that agreement.  The Court of
Appeals, having reversed the trial court's judgment, remanded the
breach of contract claim to the trial court for decision. 
Neidig, 208 Or App at 24.  Because we reverse the Court of
Appeals decision and affirm the judgment of the trial court, we
do not discuss the breach of contract claim.
10. OIGA asserted this claim in a post-trial amendment to
conform the pleadings to the evidence at trial.  The trial court
allowed the amendment of the pleadings, and the Court of Appeals
affirmed, concluding that the trial court had not abused its
discretion in permitting the amendment.  Neidig, 208 Or App at
18-22.  Defendants did not petition for review of that ruling by
the Court of Appeals, and we do not address it.
11. OIGA also advances two other arguments that do not merit
discussion.
12. In 2007, the Oregon Legislature amended ORS 731.608 and
731.628 by deleting the words "guaranty contract" and "guaranty
contracts," and replacing them with "workers' compensation
insurance policy" and "workers' compensation insurance policies." 
Or Laws 2007, ch 241, §§ 26-27.  Those changes do not affect our
analysis, and we quote the statutes that were in effect at the
time the events took place.
13. CCCC's Schedule P for 1999 (due March 1, 2000) would have
showed a required deposit of $4.4 million.  CCCC later prepared a
Schedule P that covered the policies it wrote through June 30,
2000 and showed a required deposit of $6.6 million.
14. Some of defendants' arguments regarding the treatment of
the SNIC deposit indirectly challenge the legal basis for the
September 2001 order.  Because defendants did not object to that
order when it was issued (or at any other stage in the trial
court proceedings) and did not assign error to the order on
appeal, we do not address its validity here.
15. Under the pooling agreement, CalComp agreed to reinsure
100 percent of CCCC's liabilities.  However, CalComp is not a
party to this action and has no statutory deposits in Oregon.
16. The equitable nature of piercing the corporate veil makes
it difficult to summarize the legal test in a way that is both
accurate and useful.  Fletcher derives from the cases a three-part inquiry that is consistent with Amfac:
"While the factors that will justify piercing the
corporate veil vary from jurisdiction to jurisdiction,
a number of courts will disregard the existence of a
corporate entity when the plaintiff shows: (1) control,
not merely majority or complete stock control, but
complete domination, not only of the finances, but of
policy and business practice in respect to the
transaction so that the corporate entity as to this
transaction had at the time no separate mind, will or
existence of its own; (2) that such control was used by
the defendant to commit fraud or wrong, to perpetrate
the violation of a statutory or other positive legal
duty, or to commit a dishonest and unjust act in
contravention of the plaintiff's legal rights; and (3)
that the aforesaid control and breach of duty
proximately caused the injury or unjust loss."
1 Fletcher Cyclopedia of the Law of Corporations § 41.10, 143-47
(2006 revised volume) (footnotes omitted).
17. After mid-March 2000, the Superior Group companies operated under the
conservatorship of the California Department of Insurance.  However, as described
previously, CCCC and SNIC continued to do business in Oregon and to file (or not file)
required regulatory forms under the same structure of corporate control and with the same
employees as they did before conservatorship.
18. As noted, the Court of Appeals stated that "[s]tanding
alone, however, CCCC's failure to make a security deposit under
ORS 731.628 is not the type of conduct that would justify the
extraordinary remedy of piercing the corporate veil."  Neidig,
208 Or App at 17.  It also concluded that "there was nothing
'improper' about SNIC's refund request."  Id. at 18.  In our
view, the Court of Appeals erred in examining those aspects of
defendants' conduct "standing alone."  Rather, the evidence at
trial showed that the same individuals operated SNIC and CCCC
during 2000 in a manner that evaded Oregon law and prevented DCBS
from exercising its regulatory authority to protect Oregon
consumers.
19. On de novo review, the Court of Appeals made no contrary
finding.