Opinion ID: 2373573
Heading Depth: 1
Heading Rank: 12

Heading: dissolution of the policyholders committee

Text: Next, a large controversy surrounds the Plan's proposal to dissolve the Policyholders Committee appointed January 28, 1987 by the Court. The Commonwealth Court dissolved the Committee by Order of November 22, 1989. The Policyholder Committee complains that not only is the Policyholder Class entitled to continued representation but that continued separate representation of the Class is necessary for adequate representation of the interests of Mutual Fire policyholders. Thus, they allege that the Commonwealth Court erred in dissolving the Committee. The Rehabilitator responds claiming that the real issue is not whether the Commonwealth Court acted improperly but whether she abused her discretion by determining that the Committee's fees and expenses should no longer be paid out of the estate of Mutual Fire after November 22, 1989. The Commonwealth Court, after thorough review of the competing positions, rejected the objection to the dissolution and concluded that those considerations of fairness which compelled the creation of the Policyholder Committee no longer existed in view of the outrageous cost its continued presence would have on Mutual Fire's diminished estate. We agree. The Commonwealth Court concluded, that by virtue of the instant plan and especially due to the hardship and proportional payment provisions contained therein, those parties in particular need of protection, i.e., the small policyholders, now have their interests represented and protected. Grode, 132 Pa.Commw. at 222, 572 A.2d at 811. This unquestionably satisfies the statutorily charged duty of the Rehabilitator to protect the interests of Mutual Fire insureds. Likewise, we adopt the rationale of the Commonwealth Court in approving its rejection of the Committee's claim that dissolution leaves the policyholders unrepresented. As President Judge Crumlish reasoned: As we have stated, the Rehabilitator is statutorily charged with that duty. Moreover, dissolution of the Policyholders Committee means only that this Court will not authorize payments of its costs and fees from Mutual Fire's estate. The Policyholders Committee may, as it sees fit, continue its activities outside the Court's aegis, as have the other creditors' groups known as the lender group and cedents' group. Of course, individual policyholders also continue to have an opportunity to be heard. Id. [14] We next consider the Commonwealth Court's elimination of Section XIII B, the immunity provision contained in the Plan, on the basis that it was unjustified and supererogatory since no such provision in the Plan may confer upon the Rehabilitator, her deputies or agents immunity greater than that given by Pennsylvania law as codified in Sections 8501-8528 and 8541-8564 of the Judicial Code, 42 Pa.C.S. §§ 8501-8528, 8541-8564. Grode at 222-23, 572 A.2d at 811. Sections 8521 et seq. of the Judicial Code, 42 Pa.C.S. § 8501-8528 dealing with Sovereign Immunity, expressly enumerate the limited exceptions to the general prohibition against holding a Commonwealth Agency and any of its employees liable with respect to acts within the scope of their office or agency. The Rehabilitator and her deputies as agents of the Commonwealth are controlled by these provisions and its limitations. Accordingly, the Commonwealth Court reasonably eliminated the immunity provision as unnecessary and inconsistent with the controlling, applicable statutes regarding Sovereign Immunity. Finally, we address the Plan's indemnification agreement and the Commonwealth Court's approval of this provision. First, the Policyholders Committee argues that certain employment agreements entered into by the Rehabilitator ought to be disapproved. Specifically, they seek to eliminate the employment of more than one deputy and strike those portions of the agreements with the appointed deputies and other employees which contain indemnification agreements. We agree with the Commonwealth Court, who in rejecting this contention stated that pursuant to 40 P.S. § 221.16(a) and (b) the Rehabilitator is given express power to appoint a special deputy who shall have all the powers of the Rehabilitator and who shall serve at the pleasure of the Commissioner. In addition, the Rehabilitator shall have full power to direct and manage, to hire and discharge employes. . . . We do not find it unreasonable or arbitrary that the Rehabilitator has chosen to appoint a deputy and an assistant special deputy to implement a rehabilitation and to manage an estate of this magnitude. Grode, 132 Pa.Commw.Ct. at 223, 572 A.2d at 811. We find no fault with this rationale or conclusion. The Policyholders Committee also argues that indemnification agreements between the Rehabilitator and her deputies are necessarily void as against public policy, relying upon Dilks v. Flohr Chevrolet, Inc., 411 Pa. 425, 192 A.2d 682 (1963), and In re Hodgson's Estate, 342 Pa. 250, 20 A.2d 294 (1941). First, despite these objections, the Commonwealth Court upheld the indemnity provisions and their legitimacy, distinguishing the present matter from Hodgson's Estate, supra , in which the rule applied in the context of testamentary trust litigation. The court held that the rehabilitation deputies do not act in the same fashion as executors or administrators in a probate context. The court then rejected the Policyholders Committees' reliance upon Dilks, supra, which it held did not stand for the proposition that exculpatory clauses, which may be voided as against policy, Boyd v. Smith, 372 Pa. 306, 94 A.2d 44 (1953), and indemnity provisions receive the same treatment under Pennsylvania law. Grode, 132 Pa. Commw. at 224, 572 A.2d at 812 (emphasis in original). Rather, the Commonwealth Court found persuasive and relied upon the reasoning of the United States Court of Appeals for the Third Circuit in Jamison v. Ellwood Consolidated Water Co., 420 F.2d 787, 789 (3d Cir.1970), to reach its conclusion that the public policy concerns regarding exculpatory clauses were not determinative of the legality of indemnity agreements. Furthermore, the court identified some valid policy concerns in support of its rejection of the Policyholders Committees' arguments and in upholding the appropriateness of the indemnity agreement, stating: In order to attract persons of proven ability, that necessity dictates that those persons be somehow insulated from the fears and costs of possible litigation by naturally disgruntled claimants and other creditors who will inevitably suffer some loss. To this end, the Rehabilitator has adopted a reasonable policy of indemnifying her deputies for all actions within the scope of their appointed duties. Grode, 132 Pa.Commw. at 225, 572 A.2d at 812. While the Plan as modified and approved by the Commonwealth Court and as modified by this Opinion may adversely affect some individual interests, we believe that it legitimately seeks to equitably apportion unavoidable losses and is free from arbitrary or capricious provisions which would render the Plan unacceptable as an abuse of the Rehabilitator's discretion. Accordingly, after a thorough review of the objections presented and the various components of the Plan, we remand Section XVII of the Plan to the Commonwealth Court to modify that provision consistent with this Opinion. We approve the remaining provisions of the Plan as modified by the Commonwealth Court. Affirmed in part, remanded in part. LARSEN and McDERMOTT, JJ., did not participate in the consideration or decision of this case.