Opinion ID: 1193727
Heading Depth: 2
Heading Rank: 2

Heading: Scope of Insurance Commissioner's Authority

Text: HRS § 431:15-310 is part of the Insurers Supervision, Rehabilitation and Liquidation Act (ISRLA). See HRS ch. 431:15 (1993). HRS § 431:15-310(a) provides in relevant part: The liquidator shall have the power to: .... (13) Prosecute any action which may exist on behalf of the creditors, members, policyholders or shareholders of the insurer against any officer of the insurer, or any other person; .... (19) Exercise and enforce all the rights, remedies, and powers of any creditor, shareholder, policyholder, or member, including any power to avoid any transfer or lien that may be given by the general law and that is not included with section 431:15-315 through section 431:15-317; [and] .... (22) Exercise all powers now held or hereafter conferred upon receivers by the laws of this State not inconsistent with the provisions of this article. (Emphases added.) Likewise, HRS § 431:15-313(b) (1993) provides in relevant part: The liquidator may, upon or after an order for liquidation, within two years or such time in addition to two years as applicable law may permit, institute an action or proceeding on behalf of the estate of the insurer upon any cause of action against which the period of limitation fixed by applicable law has not expired at the time of the filing of the petition upon which such order is entered. (Emphases added.) Based upon the plain language of HRS §§ 431:15-310 and 431:15-313, the Commissioner, as liquidator of an insurer undergoing liquidation, has the power to prosecute any and all lawsuits on behalf of the insurer and all creditors, shareholders, policyholders, or members of the insurer. In addition to the broad powers conferred by HRS §§ 431:15-310 and 431:15-313, HRS § 431:15-310(b) (1993) provides: The enumeration, in this section, of the powers and authority of the liquidator shall not be construed as a limitation upon the liquidator, nor shall it exclude in any manner the liquidator's right to do such other acts not herein specifically enumerated, or otherwise provided for, as may be necessary or appropriate for the accomplishment of or in aid of the purpose of liquidation. Therefore, read in pari materia with HRS §§ 431:15-310(a) and 431:15-313(b), HRS ch. 431:15 affords broad powers to the Commissioner, as liquidator, to prosecute and settle any action to protect the rights of all interested parties. The legislature enacted the ISRLA to facilitate the orderly and fair liquidation of an insolvent insurer for the protection of the interests of insureds, claimants, creditors, and the public generally[.] HRS 431:15-101(d) (1993). To achieve the ISRLA's purposes, the legislature designed the ISRLA to result in: (3) Enhanced efficiency and economy of liquidation, through clarification of the law, to minimize legal uncertainty and litigation; (4) Equitable apportionment of any unavoidable loss; [and] (5) Lessening the problems of interstate rehabilitation and liquidation by facilitating cooperation between states in the liquidation process, and by extending the scope of personal jurisdiction over debtors of the insurer outside this State[.] HRS § 431:15-101(d) (emphases added). The ISRLA further mandates that the provisions of HRS ch. 431:15 be liberally construed to protect the interests of policyholders, claimants, creditors, and the public generally. See HRS § 431:15-101(c) (1993). To promote the legislature's goals to minimize litigation and equitably apportion any unavoidable loss, the ISRLA provides for an automatic stay of all proceedings against the insolvent insurance company and the liquidator. HRS § 431:15-313(a) provides in relevant part: Upon issuance of an order appointing a liquidator ..., no action at law or equity shall be brought against the insurer or liquidator, whether in this State or elsewhere, nor shall any such existing actions be maintained or further presented after issuance of such order. The courts of this State shall give full faith and credit to injunctions against the liquidator or the company or the continuation of existing actions against the liquidator or the company, when such injunctions are included in an order to liquidate an insurer issued pursuant to corresponding provisions in other states. (Emphases added.) In addition, HRS § 431:15-307(a) (1993) provides: An order to liquidate the business of a domestic insurer shall appoint the commissioner and the commissioner's successors in office liquidator, and shall direct the liquidator forthwith to take possession of the assets of the insurer and to administer them under the general supervision of the court. The liquidator shall be vested by operation of law with the title to all of the property, contracts, and rights of action and all of the books and records of the insurer ordered liquidated, wherever located, as of the entry of the final order of liquidation. (Emphases added.) Based upon the statutory scheme and the underlying purposes of the ISRLA, the legislature intended to grant the Commissioner the broad powers to facilitate an orderly liquidation of an insolvent insurance company and to ensure an equitable apportionment between creditors of any losses that may result. The Hawai`i legislature adopted the ISRLA in 1987, patterning it, in part, after the Uniform Insurers Liquidation Act (UILA) created by the National Association of Insurance Commissioners (NAIC). See Insurers Rehabilitation and Liquidation Model Act (National Association of Insurance Commissioners 1995). The provisions of New York's insurance laws regarding the liquidation of an insolvent insurance agency are similar to the provisions contained in Hawaii's ISRLA. See N.Y. Ins. Law § 7405(b) (McKinney 1985). [5] Accordingly, because Hawai`i appellate courts have not yet addressed the scope of the insurance commissioner's powers in rehabilitating/liquidation an insolvent insurer, New York's interpretation of their insurance law's provisions governing liquidation is useful in construing HRS ch. 431:15. In Corcoran v. Frank B. Hall & Co., Inc., 149 A.D.2d 165, 545 N.Y.S.2d 278 (N.Y.App. Div.1989), the Appellate Division of the Supreme Court of New York held that the superintendent of insurance, as liquidator of an insolvent insurance company, had exclusive standing to assert claims on behalf of the insurance company, its policyholders and creditors against third parties. Id. at 280-81. The liquidator in Corcoran brought an action against the parent company of the insolvent insurer, its subsidiaries, and its former officers and directors. Id. at 279. The liquidator brought the action on behalf of the insolvent insurer and its policyholders and creditors. Id. The liquidator's claims sought to hold the parent company of the insolvent insurer responsible for fraud and misrepresentation as to the insurer's true financial condition and breach of fiduciary duty. Id. at 279-80. Subsequent to the liquidator's action, the creditors in Corcoran brought a separate action against the parent company of the insolvent insurer that alleged virtually the same claims as those raised by the liquidator's suit. Id. In rejecting the creditors' argument that the liquidator did not have standing to sue on behalf of the creditors of the insolvent insurer, the court noted that the liquidation provisions were designed to furnish a comprehensive, economical, and efficient method for the winding up of the affairs of ... insurance companies by the... [liquidator]. [The liquidation] provisions... are exclusive in their operation and furnish a complete procedure for the protection of the rights of all parties interested.... The ... [liquidation court], in the liquidation proceeding, must take cognizance of the interests of the policyholders, creditors, stockholders, and the public... and it may issue such orders as may be deemed necessary to prevent interference with the ... [liquidator] or the proceeding, or waste of the assets of the insurer.... Clearly does the plan emerge that the ... [liquidation court], with the agency of the ... [liquidator], was intended to have exclusive jurisdiction of claims both for and against an insurance company in liquidation. Id. at 282 (quoting Knickerbocker Agency, Inc. v. Holz, 4 N.Y.2d 245, 173 N.Y.S.2d 602, 607, 149 N.E.2d 885 (1958)) (some alterations in original and some added) (emphasis in original). The court also concluded that the pre-eminent purpose of the liquidation provisions, which was the equitable treatment of all creditors and the avoidance of preferences, would be frustrated if creditors were allowed to bring separate actions in addition to that brought by the liquidator. See id. at 282-83. Therefore, the court held, pursuant to N.Y. Ins. Law § 7405(b), [6] that: (1) the liquidator had paramount and exclusive standing to assert claims on behalf of its policyholders and creditors; and (2) the statute's liquidation provisions were exclusive and furnish a complete procedure to protect the rights of all interested parties. Id. at 280-84. We agree with the reasoning of Corcoran. As discussed above, the relevant liquidation provisions of ISRLA are similar to those in New York's Insurance Law. See supra note 5 (comparing N.Y. Ins. Law § 7405(b) with HRS § 431:15-307). In fact, by expressly granting the Commissioner the power to [p]rosecute any action which may exist on behalf of the creditors and to [e]xercise and enforce all the rights, remedies, and powers of any creditor, the ISRLA contemplates even broader powers for our insurance commissioner than does the New York statute for New York's superintendent of insurance. HRS §§ 431:15-310(a)(13) and 431:15-310(a)(19) (emphases added). [7] Like the pre-eminent purpose discussed in Corcoran, the underlying purposes of the ISRLA include the equitable treatment of all creditors and the avoidance of preferences. Indeed, a flood of claims arising from an insurer's insolvency brought by each creditor of the insolvent insurer would potentially result in an award to one creditor that could be disproportionate to that of another creditor. Under such a system, which encourages creditors to race to the courthouse, it is difficult to imagine how a party faced with the prospect of numerous lawsuits from various creditors would be able to settle the multitude of lawsuits in an orderly and equitable manner. Such a construction of the ISRLA would be inconsistent to its purposes of ensuring the equitable apportionment of losses and minimizing litigation. Because we presume that the legislature did not intend such an absurd result, the exclusivity of the Commissioner's standing is necessary to minimize litigation and to ensure the equitable apportionment of losses. Given these considerations and considering the statutory scheme of the ISRLA, we hold that the Commissioner has exclusive standing to assert claims arising out of the liquidation or rehabilitation of an insurance company on behalf of not only the insolvent insurer, but also its policyholders, creditors, and all other interested parties. Having adopted the reasoning of the Corcoran court, we now turn to the facts of this case. In this case, the material facts, which are undisputed, are exactly the same as those in Corcoran. Like the liquidator in Corcoran, who brought an action against the parent company of the insolvent insurer, the Commissioner, in this case, brought an action against HEI, which was the parent company of HIGC, HUI, and UNICO. Like the lawsuit against the parent company in Corcoran, the lawsuit against HEI was brought on behalf of all creditors, potential creditors, policyholders, and claimants of HIG, including Plaintiffs. The Commissioner in this case also asserted claims that were similar to those brought by the liquidator in Corcoran ( i.e., that the parent company of the insolvent insurer intentionally undercapitalized the insurer and misled the insurer's creditors, policyholders and the public). The Commissioner's lawsuit against HEI concluded in a thirty-two million dollar settlement in favor of HIG. The proceeds from this settlement were used to help reduce an anticipated seventy million dollar shortfall in HIG's estate. In effect, the Commissioner's settlement with HEI was used to pay the claims of HIG's creditors, including Plaintiffs, in accordance with the plan's claims settlement procedure. [8] Despite the Commissioner's success in securing a settlement from HEI, Plaintiffs subsequently filed their own complaint against HEI for essentially the same causes of action as that brought against HEI by the Commissioner. Like the Commissioner's complaint against HEI, the Plaintiffs alleged, in essence, that HEI: (1) misled HIG's creditors, policyholders and the public regarding HEI's and HEIDI's financial support of HIG; and (2) mismanaged and drained financial assets from HIG. Indeed, like the creditors in Corcoran, Plaintiffs brought this suit after the conclusion of a similar suit brought by the liquidator. The complaint filed by Plaintiffs against HEI alleged similar causes of action as the suit brought by the Commissioner. Given the factual similarity between this case and Corcoran, we hold as a matter of law that the Commissioner in this case had exclusive standing to assert all claims arising out of HIG's liquidation and rehabilitation on behalf of not only HIG, but also its creditors, including Plaintiffs. [9] Because Defendants were entitled to judgment as a matter of law and there being no genuine issues of material fact, the circuit court properly granted summary judgment in favor of Defendants.