Opinion ID: 1225811
Heading Depth: 1
Heading Rank: 6

Heading: the incidents of oklahoma insolvency law make all insolvent insurers (subject to this state's jurisdiction) amenable to modification of their contractual obligations

Text: ¶ 14 Governmental authority to regulate the insurance business as an enterprise affected with public interest lies within the state's recognized police power. [12] Insurance companies do business under supervisory control of the State Insurance Commissioner. [13] That official's power is exercised for the benefit of the policyholders and of the public. [14] Reasonable state regulations are not deemed violative of the constitution as an impermissible deprivation of property which offends due process of law. [15] When declared insolvent, insurers chartered by this state become subject to a legal regime interposed to regulate their special rights and liabilities applicable to entities which cannot meet obligations as they become due. The terms of insolvency law are to be viewed as the rules of conduct with respect to which all insurers must contract on a daily basis. ¶ 15 In federal bankruptcy matters, the Bankruptcy Act takes precedence over other laws and, in case of conflict, controls over competing statutory preferences. [16] Because attempts to place the insurance industry under congressional control as an activity in interstate commerce failed to take hold, the states continue to have plenary power to regulate this business in the public interest. [17] ¶ 16 The focus of state concern is insurer misconduct. [18] Both supervision and conservatorship of the industry are matters of public policy. They are necessary to the public welfare and have been declared a condition of doing insurance business in this state. [19] In the process that immediately precedes the declaration of an insurer's insolvency (called a delinquency proceeding) it is the court's duty to appoint as receiver the insurance commissioner, [20] who, by force of law, becomes vested with title to property, contracts, and all rights of action formerly controlled by the insurer. [21] The state's power that is set in motion at this point consists of not only the authority to regulate but also to rehabilitate, liquidate, sell assets, and bring about restructuring of the insolvent company. [22] ¶ 17 Insurance companies are creatures of the law and must act in conformance with its provisions. All insolvent insurers doing business in this state are subject to those contract modifications which govern them in equity as well as by statute. In short, the state has the power to say what contracts are enforceable against insolvents as well as in what manner and in what forum they may be performed. [23] ¶ 18 State government's police power to regulate the insurance industry is part of the existing law in every insurance contract that is executed. That power, in contemplation of law, is a part of every such contract. [24] Once the insurance commissioner's control over an insolvent risk carrier stands conferred, the insurer's contractual obligations are subjected to strict scrutiny imposed by both equity jurisprudence as well as the statutes. ¶ 19 The rule against impairing contracts by after-enacted legislation does not protect those who deal with a department of government that is given the power to safeguard public welfare. [25] There is a legal presumption that when contracts are entered into by a highly-regulated enterprise, such as the insurance industry, the parties cannot by private agreement withdraw their undertaking from the police power of the state. [26] Were it not for this rule the state's regulatory authority would, in every instance, be defeated by the contracting companies' will. [27] ¶ 20 Where police power is exercised for a public purpose, insolvents' contracts must yield to the accomplishments of that end. [28] Rehabilitation of insurance companies under state insolvency statutes does not impair contractual obligations. [29] Upon the occurrence of an insurer's insolvency, contracts are subject to reassessment in light of the applicable equity rules that govern in administering the insolvent insurer's assets. The provisions of 36 O.S.1991 § 1928 B.4, which in some circumstances pose a barrier to offsets, are to be viewed as no more than a supplement to the governing equity jurisprudence. Their terms include pre-existing principles of the state's regulatory scheme applicable in insolvency proceedings. That scheme allows modification of contractual terms when that becomes necessary to uphold public policy. [30] ¶ 21 All insurers declared insolvent stand subject to the state's power to modify their contractual obligations. To meet the legitimate objective of liquidation, rehabilitation or sale, the exercise of that power is well-nigh critical, if not indeed indispensable. [31]