Opinion ID: 835369
Heading Depth: 2
Heading Rank: 2

Heading: SNIC's Liability as a Reinsurer of CCCC: SNIC's Deposit and the Insurance Code

Text: 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.