Court Opinion

ID: 9548697
Source: CourtListenerOpinion
Date Created: 2023-08-07 18:07:12.016361+00
Date Added: 2024-06-11T15:19:18.163901
License: Public Domain

PETERSON, C. J.,
concurring in part and dissenting in part.
In large part, I agree with the majority. The majority is correct that
*404“[t]here can be little doubt that the purpose of ORS 656.634 was to assure employers who insured with SIAC, and subsequently with SAIF, that the state would not do precisely what it did do in the Transfer Act. * * *”
and
“ORS 656.634 expressed a contractual promise of the state to employers who insured with SAIF that the state would not transfer IAF funds to the General Fund.” 306 Or at 393.
I would hold, however, that the passage of the 1982 law breached an existing contract between the State of Oregon on the one hand, and the employers and workers of Oregon on the other, entitling the plaintiff herein to relief, and that the 1982 law impaired the obligation of that contract under the Oregon Constitution. I would order the $81 million repaid to SAIF.
The analysis is simple and straightforward:
Before the 1982 amendments, ORS 656.6341 provided that “(1) The Industrial Accident Fund is a trust fund exclusively for the uses and purposes declared in ORS 656.001 to 656.794 * * *,” and “(2) The State of Oregon declares that it has no proprietary interest in the Industrial Accident Fund * * * ”
The “contract” between the state and employers who were insured by SAIF is found in part in ORS 656.526(1) and (2). Before the 1982 amendments, ORS 656.526 provided in relevant part:
“(1) Periodically, the State Accident Insurance Fund Corporation shall determine the total liability existing against the Industrial Accident Fund.
“(2) If, after the determination required by subsection (1) of this section, the State Accident Insurance Fund Corporation finds the Industrial Accident Fund, aside from the reserves deemed actuarially necessary according to recognized insurance principles, contains a surplus, the State Accident Insurance Fund Corporation in its discretion may declare a dividend to be paid to, or credited to the accounts of, employers who were insured by the State Accident Insurance Fund Corporation during all or part of the period for which the *405dividend is declared. Any dividend so declared shall give due consideration to the solvency of the Industrial Accident Fund, not be unfairly discriminatory and not be promised in advance of such declaration.”
SAIF is a government insurance company. This is apparent from its name — State Accident Insurance Fund Corporation (ORS 656.751); from its purpose — SAIF “is created for the purpose of transacting workers’ compensation insurance and reinsurance business” (ORS 656.752); and from its ORS 656.752 “functions” — those of any workers’ compensation insurer: to “solicit employers,” to collect the premiums of insured employers, to “receive and handle and process the claims of workers,” to “furnish advice, services and excess workers’ compensation and employer liability insurance,” and to “provide reinsurance coverage to Oregon employers” (ORS 656.752).
The source of the contract between the state (through SAIF) and its insureds that is acutely relevant herein is ORS 656.526(1) and (2), set forth above. The statute sets forth the financial arrangements between SAIF and its insureds and workers. SAIF receives premiums from its insureds. Those premium dollars are to be handled as such moneys are required to be handled by insurers generally. Apart from its costs of operation, ORS 656.526 requires SAIF to conduct its affairs as follows:
First, SAIF must “determine the total liability existing against the [IAF].” ORS 656.526(1). Second, SAIF is required to determine reserves “deemed actuarially necessary according to recognized insurance principles.” ORS 656.526(2). These two steps are designed to assure the payment of benefits to workers before any dividends are declared. Third, from the “surplus,” the amount remaining after steps one and two, SAIF “in its discretion may * * * declare a dividend to be paid to, or credited to the accounts of, employers who were insured by [SAIF] during all or part of the period for which the dividend is declared.” ORS 656.526(2).
The contract between SAIF and its insureds is essentially this: In return for the payment of premiums, SAIF is to use the premiums to pay its costs of operations, including claims; to set up appropriate reserves for payment of claims *406“according to recognized insurance principles”; and “in its discretion,” to declare dividends from the surplus.2 •
ORS 656.526(2) does not expressly state that SAIF will exercise good faith in deciding whether to “declare a dividend,” but I have little doubt that it would be improper for SAIF to amass an unreasonably large surplus. In fact, the 1982 law makes this very point. The proposition that unreasonably large surpluses cannot be retained is driven home by section 1(8) of chapter 2 of the 1982 law, which provides:
“As an independent public corporation, it is inappropriate and contrary to public policy for the State Accident Insurance Fund Corporation to continue to maintain a surplus so far exceeding the amount necessary for its statutory purposes.” Or Laws 1982 (3d Special Session), ch 2, § 1(8).
Although that paragraph likely was included in the 1982 law as a justification for the transfer, the paragraph as well supports the proposition that SAIF, in discharging its obligation to its insureds under ORS 656.526(1), cannot “maintain a surplus * * * exceeding the amount necessary for its statutory purposes.” Or Laws 1982 (3d Special Session), ch 2, § 1(8).
Moreover, the 1982 law confirms that such distributions were made. Section 1(4) expressly refers to SAIF’s practice of paying dividends. It states: “Dividends for calendar years 1981 and 1982 have already been declared and paid.”
As stated above, SAIF is a government insurance company. The state has “no proprietary interest” in the IAF. ORS 656.634(2). In some respects, its method of operation is akin to that of a mutual insurance company. Its insureds contribute to the creation of a fund to pay claims and costs of operation, and to establish reserves. Ultimately, surplus funds are divided among the insureds by. the payment of dividends. That seems to be the goal of ORS 656.526(2).
The law involving mutual insurance companies is analogous. The general rule is that the surplus of a mutual insurance company belongs to its policyholders, with distribution to be made according to the governing statutes, See 2 *407Couch on Insurance 2d 692, § 19:24 (rev ed 1984). Often, as here, decisions concerning dividends are left to the “discretion” of the board.
ORS 656.526 appears to enact for SAIF the general rule concerning declaration of dividends by insurers. The board determines how much of the surplus should be retained to insure the security of the policyholders, to pay claims, and to cover contingencies. It then, in its discretion, decides how much should be distributed to the policyholders. The exercise of this discretion is reviewable by courts, the usual referents being bad faith, fraud, or abuse of discretion. See 6 Couch on Insurance 2d 971-74, §§ 34:121-22 (rev ed 1985); see also Gilmore v. State Compensation Insurance Fund, 23 Cal App 2d 325, 328, 73 P2d 640, 642 (1937) (premium paid to California State Compensation Fund “in excess of compensation necessarily paid, and the cost of creating and maintaining the fund, is to be refunded in dividends or credited on the renewal * * petition failed to allege facts showing a breach of duty by the fund).
I have no opinion and the record does not show whether the SAIF board would have declared a dividend but for the $81 million transfer. (As stated, we do know that SAIF declared a dividend in 1981 and 1982. Section 1(4) of the 1982 law states: “Dividends for calendar years 1981 and 1982 have already been declared and paid.”) If the facts would warrant such a distribution, presumably SAIF’s board would order it, for the general rule is that directors of a mutual insurance company cannot withhold a dividend that should be declared. Rhine v. New York Life Ins. Co., 273 NY 1, 6 NE2d 74 (1936).
One inescapable conclusion is that the transfer of the $81 million entirely prevented SAIF’s board from exercising its discretion in deciding whether to declare a dividend.3
*408Turning to the question whether the plaintiff has been damaged, it is appropriate to ask: “Who is the owner of the SAIF surplus?” Unquestionably, that answer is: “SAIF, free from any right of the State of Oregon.” Nonetheless, the majority rejects the plaintiffs right to relief herein beyond a declaration of rights because he had not “produced any evidence that he had been damaged by the state’s breach of contract.” 306 Or at 402. In this the majority errs.
Although SAIF was the “owner” of the surplus funds, the plaintiff, as an employer who was insured, has two distinct, real, substantial and legally cognizable interests in the fund. One is his right to the payment of dividends to be declared by SAIF. Granted, this is an inchoate right, but it is a right that gives him standing in this case, for as the majority itself admits, he “alleged legally cognizable injuries that he allegedly suffers as an employer insured with SAIF and not simply as a member of the public * * 306 Or at 386. The *409position as an insured that gives him standing is the very reason for his right to dividends as and when they are declared. The state’s breach of contract has entirely taken this away, at least to the extent of his “share” of the $81 million. This damage is sufficiently substantial to accord relief to the plaintiff.
Second, although this damage is less substantial and less immediate, policyholders of SAIF, including plaintiff, before passage of the 1982 laws very likely would have, by contract, an interest in the surplus as beneficial owners. In mutual insurance companies the policyholders are said to be the owners of the surplus. Were the legislature to dissolve SAIF and get out of the worker's’ compensation business, the surplus likely would be distributable to the persons entitled to that surplus, and the plaintiff herein likely would be entitled to his pro rata share. In any event, as between the State of Oregon and SAIF’s insureds, under the contract between the state and SAIF’s insureds, the insureds have a greater right to the $81 million surplus than does the State of Oregon.
Without any evidence beyond the statutes themselves, the plaintiff has established a right to relief. In his complaint he asks for return of the moneys to the fund. That simple measure of relief would, in one stroke, return the concerned parties to the status existing before the 1982 laws were passed. That is what should be done. The only effective remedy is to order the State of Oregon to repay the $81 million to SAIF. SAIF’s board of directors then, and only then, could exercise its discretion to decide whether a dividend should be declared.
The concurring opinion suggests that relief might be available if a suit resembling a shareholder’s derivative suit is filed and SAIF is made a party. See ORCP 29. I would not require that. I do not view SAIF as an indispensable party, see ORCP 29, and would simply remand for entry of a decree requiring the return of the $81 million to SAIF.
The transfer of the $81 million from SAIF to the General Fund breached the contract with SAIF’s policyholders and impaired, permanently and irrevocably, the ability of SAIF to perform its contractual obligation to its insureds — to consider the $81 million ‘for distribution to *410SAIF’s insureds. We would not permit a private insurer to do that; we should not permit the state to do it.
I fear that the majority’s remedy is illusory. It apparently holds that (1) there was a breach of contract, and (2) that section 4 is unconstitutional, but it leaves open the question of what should be done with the $81 million. I confess a measure of bewilderment with this ultimate result. On the one hand, the majority holds that the state must “compensate employers for the breach.” 306 Or at 402. But it turns away the plaintiff here because he has shown no “taking” or “deprivation” of his property, and because he has shown no “harm to his contractual interests.” 306 Or at 403. Yet it holds — a holding with which I agree — that “ORS 656.634 expressed a contractual agreement of the state to employers who insured with SAIF that the state would not transfer IAF funds to the General Fund.” 306 Or at 393.
I doubt that an employer ever will be able to show the type of damage that the majority apparently finds wanting, for until SAIF is returned the $81 million, it can never exercise its discretion to “declare a dividend to be paid to, or credited to the accounts of, employers who were insured by [SAIF] during all or part of the period for which the dividend is declared.” ORS 656.526(2). I believe that the plaintiff has gone about as far as he can go. He has an interest in the $81 million, an interest that may never be recognized unless the return of the $81 million is ordered.
I therefore dissent in part. I should add that I agree with the second and third paragraphs of Justice Gillette’s separate opinion.

 Unless otherwise stated, all references are to the statutes in effect before the 1982 amendments.

 The statutes concerning SAIF’s reserve accounts include ORS 656.635 to 656.644. Reserves for paying awards and benefits are governed by ORS 656.636. Creation of “other reserves * * * as are deemed necessary” is governed by ORS 656.640. The statutory source of the fund for disbursement of “surplus to employers as required by ORS 656.526” is ORS 646.642.

 Soon after the 1982 legislation was passed, SAIF filed a complaint against the State of Oregon asserting that both 1982 laws were unconstitutional. SAIF Corporation v. State of Oregon, Marion County Circuit Court No. 136437.
SAIF was sensitive to its responsibilities to its workers and policyholders. Paragraph I of its complaint forthrightly alleged:
“This is an action for a declaratory judgment regarding the validity of two Oregon laws, HB 3324 and HB 3325, which were enacted as a package on September 3, 1982. Those measures require that $81 million be taken from the Industrial Accident Fund and placed in Oregon’s General Fund. Plaintiffs are *408public trustees of the Industrial Accident Fund, and contend that the proposed transfer violates the Oregon Constitution and the Constitution of the United States. They seek a declaratory judgment to that effect, a permanent injunction prohibiting the transfer, and restitution of any moneys transferred prior to final judgment.”
The complaint also alleged:
“The operations of SAIF Corporation are similar to those of the private insurance companies with which it competes.
«* * * * *
“HB 3324 and HB 3325 impair the obligations of the State of Oregon under its statutory charter to SAIF Corporation, and the obligations of SAIF’s corporation’s contracts with its policyholders and covered employees, in violation of Article I, § 21 of the Oregon Constitution and Article I, § 10 , cl. 1 of the United States Constitution.
«* * * * *
“HB 3324 and HB 3325 interfere arbitrarily with the settled expectations of SAIF Corporation, its policyholders and covered employees. Those statutes constitute an impermissible deprivation of property rights in violation of the Due Process Clause of the Fourteenth Amendment to the United States Constitution.”
Attorney General Dave Frohnmayer responded by filing a separate action for declaratory judgment in which he alleged that the Attorney General “has general control and supervision of all civil actions * * * in which the State of Oregon may be a party,” that SAIF “is an institution of the State of Oregon” and that “SAIF may not employ or be represented by other counsel or attorney at law * *
This court upheld the assertion of the Attorney General in Frohnmayer v. SAIF, 294 Or 570, 660 P2d 1061 (1983). The records of the Marion County Circuit Court show that the SAIF Corporation v. State of Oregon action was dismissed in January 1985 for lack of prosecution.