Opinion ID: 2598249
Heading Depth: 1
Heading Rank: 15

Heading: Issue 2: Did the Commissioner act beyond the jurisdiction conferred by the acquisition statute?

Text: Anthem and BCBSKS also argue that the Commissioner's order of denial was beyond the jurisdiction of the acquisition statute and relief may therefore be granted under K.S.A. 77-621(c)(2). While they identify (c)(2) as a basis for relief, their written arguments which follow that identification instead essentially concentrate on the basis of (c)(4): whether the Commissioner has erroneously interpreted or applied the law, which allegedly results in the Commissioner acting beyond her jurisdiction. As a result, we interpret this argument as essentially the same as (c)(2), which was addressed in great detail in issue 1. Under this heading, however, Anthem and BCBSKS do add the argument that the Commissioner's order is contrary to the conversion law, K.S.A. 40-4001 et seq. Basically, they argue that because the Commissioner approved the conversion of BCBSKS from a mutual company to a stock company, and concluded that (1) the plan of conversion  which paid $131 million of the surplus to policyholders  is fair and equitable to the policyholders, and that (2) the converted company would meet the minimum requirements to be issued a certificate of authority; therefore, that she may not deny the acquisition by claiming the reduction of surplus was in violation of the acquisition statute, K.S.A. 40-3304(d)(1). The Commissioner responds by arguing as follows: A `sponsored' demutualization is a two-step process. In this case, the first step is BCBSKS's conversion to a new stock insurer. This transformation from mutual insurer to stock insurer takes place only under the conversion statutes. K.S.A. 40-4001 et seq. This occurs, if at all, under the existing BCBSKS management. The second step is the actual acquisition of the `new' BCBSKS stock insurer by Anthem pursuant to the Kansas Holding Companies Act, K.S.A. 40-3301 et seq. When K.S.A. 40-4004(a)(4) refers to `the continued operations of the new stock insurer,' the reference is only to BCBSKS's continued operation as a stock insurer. It has nothing to do with Anthem's effort to acquire the new company. The Holding Companies Act must be viewed within its own context, i.e., the transfer of control of a domestic insurer. The Commissioner's findings under the conversion statutes are inapplicable. We agree. More importantly, however, we also observe that while the Commissioner in considering the conversion found BCBSKS as a converted insurer would meet the minimum requirements to be issued a certificate of authority by the Commissioner, e.g., minimum surplus requirements, she did not find all the remaining requirements for conversion. K.S.A. 40-4004(a) states in relevant part: The commissioner shall approve the [conversion] plan if the commissioner finds that: . . . . (4) the new stock insurer would meet minimum requirements to be issued a certificate of authority by the commissioner to transact business in this state, and the continued operations of the new stock insurer would not be hazardous to existing or future policyholders or the public.  (Emphasis added). Nowhere in the Commissioner's final order does she find that the continued operations of the new stock insurer would not be hazardous to existing or future policyholders or the public. It cannot be inferred from her finding that the surplus distribution was fair and equitable to policyholders, nor from her finding that the plan of conversion complies with the provisions of the act; the missing finding is an element separate from these findings. Contrast K.S.A. 40-4004(a)(1) and (2) with (a)(4). Such a finding is requisite to conversion approval. In addition, the Commissioner's order does not expressly state the requisite conclusion, i.e., that she approves the conversion. For these reasons, we hold that the Commissioner's order was not beyond the jurisdiction conferred by the acquisition statute.