Opinion ID: 835369
Heading Depth: 3
Heading Rank: 4

Heading: Harm to OIGA

Text: 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, 654 P.2d 1092, and that that improper conduct caused OIGA's injury.