Opinion ID: 2018775
Heading Depth: 1
Heading Rank: 5

Heading: Real estate tract 21

Text: Sierra listed as an asset on its 1975 annual statement real estate tract 21, of approximately 26 acres, located in Knoka, Hawaii County, Hawaii at a book value of $274,964. The commissioner concluded that this was unimproved property being held by Sierra for speculative purposes and that such asset was not secure or well invested. He nonadmitted the entire $274,964 value of this asset in his determination of Sierra's financial condition. Sierra asserts that tract 21 was acquired in satisfaction of a debt, and, therefore, pursuant to the insurance laws pertaining to property acquired in satisfaction of debt, it was not necessary that tract 21 be improved property or that it be income producing. The commissioner, however, made a finding that tract 21 was acquired in an exchange of assets transaction and not in satisfaction of a debt. Fred Frazier, president of Sierra, testified as follows with respect to the acquisition of tract 21: Q. Please explain to the Hearing Officer how Sierra Life acquired that real estate known as tract 21, K-N-O-K-A, Hawaii County, State of Hawaii. A. Well, that was taken in on exchange on the stock of Greater Idaho, and it's twenty-six acres; it's in the best location.       Q. Now this allegation in the Complaint says it was acquired in satisfaction of a debt. I think you testified it was acquired in the Greater Idaho A. Well, it was acquired at the time we made the sale of Greater Idaho in satisfaction of a debt along with the overall saletransaction. No other evidence was introduced on this issue. The above testimony is not fully enlightening, to say the least; nevertheless, we conclude that the commissioner's finding that tract 21 was acquired in an exchange of assets and not in satisfaction of debt is supported by a preponderance of evidence. The commissioner used Subsection 13 of Section 26-08-11, N.D.C.C., as a guideline for determining the permissibility of Sierra's investment in tract 21. That subsection provides that domestic insurance companies can invest in real estate for the production of income or for improvement or development for the production of income. . . It does not authorize insurance companies to invest in unimproved real estate for the purpose of allowing such property to lie idle to speculate on possible capital gains which may be achieved through appreciation of the property. The commissioner made findings that tract 21 was unimproved real estate which Sierra was not developing and that Sierra was holding tract 21 for speculative purposes. With regard to those facts Sierra's president testified, on direct examination, as follows: A. . . . and this ground has been going up in value so we haven't pursued doing anything with it at this point because it's been increasing in value. On cross examination Sierra's president further testified as follows: Q. You said that you had personally inspected this particular tract? A. Yes, sir. Q. Is that correct? A. Yes, sir. Q. Are there any buildings located on that particular tract? A. No, sir. Q. Is the land under cultivation? A. It's got banana groves on it, papaya treesand what's those green things? Q. Is it under lease for agricultural purposes? A. No. Q. Is it overgrown with brush? A. Yeah. It has been farmed. The guy that has the place next to it looks after it and grazes it and I guess picks the fruitbananas. Q. There's no improvements located on this particular tract? A. Are you talking about a building? There's power lines, phone lines, roads and water and sewer lines on the roads.       Q. Is there a well located on this particular tract? A. I don't know whether there is. No, I don't suppose. There could be. I don't know. I never looked it over for a well. There could be a well. Not that I know of. Q. The only thing that is located near this particular tract are electric lines and telephone lines. A. And water is going down the road. If you want water, you hook on the water line. Q. The water line goes down the road, too? A. Right. Now, I don't know whether you could hook onto it or not. We conclude that there is a preponderance of evidence to support the commissioner's findings that tract 21 was unimproved and that Sierra was holding tract 21 for speculative purposes and not for improvement or development. We further conclude that the foregoing findings of fact support the commissioner's determinations that such asset was neither secure nor well invested and that such asset should be treated as a nonadmitted asset in determining Sierra's financial condition.