Opinion ID: 1438220
Heading Depth: 1
Heading Rank: 3

Heading: mutualization

Text: The Insurance Code provides for mutualization of insurance companies in two different ways. Division 1, part 2, chapter 1, article 14, sections 1010-1062, entitled Proceedings in Cases of Insolvency and Delinquency provides in section 1043 for Mutualization, reinsurance and rehabilitation. Division 2, part 2, chapter 13, article 1, sections 11525-11533, entitled Voluntary Mutualization of Incorporated Life and Life and Disability Insurers Having a Capital Stock and Issuing Nonassessable Policies on a Reserve Basis provides in sections 11525 and 11526 the Authorization to mutualize and the Method of mutualization. There is no dispute concerning the method actually used in this proceeding. The rehabilitation plan provided for voluntary mutualization and the matter proceeded under sections 11525 and 11526. There is complete disagreement as to which method should have been used. Appellants correctly contend that the procedure outlined for involuntary mutualization of an insolvent insurer is the only proper method. As stated in Carpenter v. Pacific Mut. L. Ins. Co., 10 Cal.2d 307, 328 [74 P.2d 761], ... the proceedings here under review were taken under sections 1010 to 1061 of the Insurance Code, adopted in 1935. (The other cases heretofore cited have reiterated this statement.) The original seizure of old company was accomplished under section 1011, subdivision (d). Section 1045 provides Mutualization of life insurer issuing nonassessable policies on a reverse basis: Formation of plan. If at any time after the issuance of an order under section 1011 affecting a life insurer issuing nonassessable policies on a reserve basis and organized with a capital stock evidenced by shares thereof it shall appear to the commissioner that the purposes of section 1011 can be best attained by the mutualization of such life insurer, the commissioner may formulate a plan for the mutualization of such insurer. (Emphasis added.) All proceedings heretofore had in this litigation have been as provided for in article 14 relating to insolvent and delinquent insurers. The rehabilitation agreement provides for mutualization under the statutory scheme set up for solvent insurers. The majority opinion states The new company is solvent and nondelinquent, and there is no sound reason why it should be mutualized under the statutes relating to insolvent insurers.... Section 1043 [which relates to insolvents], which authorizes the commissioner to enter into rehabilitation agreements, contains no express limitation on what may be included in them, and section 1037 [which also relates to insolvents] provides that the enumeration of the powers of the commissioner shall not be construed as a limitation upon him or upon his right to do such other acts as he may deem necessary in connection with the handling of the affairs of an insolvent company. (Emphasis added.) Thus the majority opinion admits the procedure relating to insolvents was the one used and impliedly admits that it is the correct procedure. However, in using the code sections relating to insolvents, the author then argues that these sections place no limitation upon the commissioner. Section 1037 provides that the powers and authority of the commissioner in proceedings under this article (which relates to insolvents) shall not be construed as a limitation on his right to act or to do that which he may deem necessary or expedient for the accomplishment or in aid of the purpose of such proceedings. Then, citing section 1043 (relating again to insolvents), we are told that the new company was properly organized by the commissioner who evidently concluded that the protection of creditors and other interested parties could best be accomplished through the formation of a new company divorced as far as possible from the control of those who were in charge of the old company when it experienced financial difficulties. Then we are told that the new company is a separate and distinct entity. We are told this without any discussion of the character of new company, and with only the unreasoned and unsupported dictum in Garrison v. Pacific Mut. L. Ins. Co., 83 Cal. App.2d 1, 9-10 [187 P.2d 893], as authority therefor. Section 11525 (the procedure followed here) provides for Authorization to mutualize. A solvent domestic incorporated insurer having a paid-in capital represented by outstanding shares of capital stock and issuing, on a reserve basis, nonassessable policies of life insurance or of both life and disability insurance, may convert itself into an incorporated mutual life insurer, or life and disability insurer, issuing nonassessable policies on a reserve basis. To that end it may provide and carry out a plan for the acquisition of the outstanding shares of its capital stock for the benefit of its policyholders, or any class or classes of its policyholders, by complying with the requirements of this chapter. (Emphasis added.) The question is thus directly posed as to whether new company falls within the classification of a solvent domestic incorporated insurer which may convert itself into an incorporated mutual life insurer which may provide and carry out a plan for the acquisition of the outstanding shares of its capital stock for the benefit of its policyholders.