Court Opinion

ID: 9630133
Source: CourtListenerOpinion
Date Created: 2023-08-22 10:02:13.964786+00
Date Added: 2024-06-11T18:07:32.006265
License: Public Domain

TRAYNOR, J.
I dissent.
Although the Legislature has provided detailed statutory provisions for the mutualization of the business of an insolvent insurer (Ins. Code, § 1045 et seq.), the majority opinion holds in effect that these provisions may be completely nullified by the execution of a rehabilitation agreement under section 1043 of the Insurance Code, if such agreement provides for the voluntary mutualization of a new insurer created for *731the purpose of carrying on the business of the old. The commissioner has broad powers in executing rehabilitation agreements, and it may be both proper and desirable for him to make use of a new corporate entity to salvage the business of an insolvent insurer. It does not follow, however, that if the end product of a rehabilitation agreement is to be the mutualization of the business of an insolvent insurer, the statutory provisions with respect to such mutualization may be ignored. To hold that they may be not only renders the provisions with respect to involuntary mutualization superfluous but deprives the interested parties of their right to the protection of court scrutiny of the plan of mutualization. (See Ins. Code, § 1051.)
The importance to the shareholders of the old company of having the court independently pass upon the fairness of the plan of mutualization is demonstrated by the facts of this case. The trial court clearly indicated that had the decision been his, the plan would not have been approved; if the shareholders were entitled to his independent judgment, their rights have been prejudiced by his failure to exercise it. This case is not one involving only the mutualization of a solvent insurer, since if it were, the shareholders would have the power to protect their interests by withholding their consent to the plan of mutualization. (Ins. Code, § 11526, subd. (b).) In fact, the business of an insolvent insurer is being mutualized pursuant to a rehabilitation agreement that has deprived the shareholders of the old company of the veto power they otherwise would have, and under the holding of the majority opinion they must look to the commissioner rather than to the court for the protection of their interests. (Ins. Code, §§11526, subd. (c), 11527.) Although the Legislature recognized that approval by the commissioner is sufficient when all of the interested parties are in a position to protect their own interests, it also provided that court approval is essential when they are not. (Ins. Code, § 1051.)
Despite the force of the foregoing considerations, if in fact the trial court in 1936 approved a rehabilitation agreement that not only provided for mutualization contrary to the statutory provisions but also restricted the power of that court to control the ultimate disposition of the assets in the hands of the commissioner as conservator or liquidator, I would reluctantly concur in the judgment on the ground that the validity of the agreement and order is res judicata. In my opinion, however, the court in 1936 did not exhaust its *732power to control the disposition of assets in the hands of the commissioner as conservator or liquidator (see Ins. Code, § 1037, subd. (d)) and that therefore the commissioner cannot carry out the terms of the mutualization agreement until as liquidator he has secured the permission of the court in the insolvency proceedings. Accordingly, until he secures that approval he cannot approve the plan presented by the price determination committee as “fair and equitable in its operation” (Ins. Code, § 11527), for it cannot be known whether it will become operative at all until it is approved by the court in the insolvency proceedings.
Subdivision (d) of section 1037 provides “that no transaction involving real or personal property shall be made where the market value of the property involved exceeds the sum of one thousand dollars without first obtaining permission of . . . [the court in the insolvency proceedings], and then only in accordance with such terms as said court may prescribe.” The stock of the new company subject to the plan of mutualization is personal property worth more than $1,000, and that plan is clearly a transaction involving such property. This section has not been complied with unless the court in approving the rehabilitation agreement granted permission to the commissioner to dispose of the stock under the terms of any mutualization agreement that might be proposed by the price determination committee 10 years or more in the future.
The order approving the rehabilitation agreement is ambiguous. Paragraph 15 provides:
“That the Insurance Commissioner of the State of California as Conservator of respondent corporation, or, if he should hereafter be appointed Liquidator of said corporation, as such Liquidator, be and is hereby authorized, without further order of this court, fully and faithfully to perform, carry out, and discharge each and all of the obligations, terms, conditions, and covenants on his part required to be performed under the terms of said Rehabilitation and Reinsurance Agreement; and, either with or without further order of this court, to make, do, execute, and deliver any and all such further or other acts, deeds, and things by him deemed reasonably necessary or desirable to effectuate the intents and purposes of said Rehabilitation and Reinsurance Agreement, and to assure and to confirm to Pacific Mutual Life Insurance Company, or its successors, all and singular the properties hereinbefore directed to be conveyed and released to said *733corporation, and to enable said corporation from and after the date hereof to conduct and continue to conduct a life and disability insurance business, as contemplated by said agreement. ’ ’
Paragraph 16 provides:
“That this court, without relinquishing by these specific provisions any jurisdiction by it retained as a matter of law, do, and it does hereby, specifically retain and reserve jurisdiction of the within proceedings (for the purpose of authorizing or approving any act of the Insurance Commissioner of the State of California done, or to be done pursuant to or in accordance with this order, and) for the purpose of making or entering, upon application of the Insurance Commissioner of the State of California or of Pacific Mutual Life Insurance Company, any order, decree, judgment, or ruling required, permitted, or requested to be done, made, or entered in connection with or pursuant to the terms of said agreement, or for the effectuation of the purposes thereof.”
Since the contemplated plan of mutualization was not to be formulated for at least 10 years, the court could obviously not approve that plan at the time it entered its order approving the rehabilitation agreement. Moreover, it did not expressly approve in advance the carrying out of any mutualization plan that might be presented by the price determination committee. Although standing alone the language permitting the commissioner to carry out the rehabilitation agreement “without further order of this court” might be interpreted as exhausting the court’s jurisdiction over mutualization, it may not reasonably be so interpreted in the light of the express reservation of jurisdiction “for the purpose of making . . . any order . . . required ... in connection with or pursuant to the terms of said agreement.” It is significant that in Carpenter v. Pacific Mut. L. Ins. Co., 10 Cal.2d 307, 322 [74 P.2d 761], this court was careful to note: ‘ ‘ The plan also provides that the commissioner, either as conservator or liquidator, shall continue to hold all the stock of the new company as a protection to all old company policyholders. Ultimate mutualization, in the event the policyholders so elect is also provided for. The trial court reserves jurisdiction over the entire proceeding.” Paragraphs 15 and 16 may be reconciled by interpreting them as authorizing the commissioner without further order of the court to carry out the rehabilitation agreement to the extent that its provisions represented a completed plan for rehabilitation and *734reinsurance, and at the same time reserving to the court jurisdiction to approve or disapprove plans to be developed in the future for mutualization or other disposal of the stock in the hands of the commissioner. Such an interpretation of the order subserves the primary purpose of section 1037, subdivision (d), and the statutes governing involuntary mutualization by securing to all interested parties their right to court scrutiny of all steps in the proceedings that substantially affect their rights, and since the order is reasonably susceptible of that interpretation it should be adopted. Although the validity of the rehabilitation agreement and the order approving it are res judicata, the interpretation of the order is not res judicata, and it should not be interpreted to sanction further departures from the statutory provisions than res judicata compels. (See Watson v. Lawson, 166 Cal. 235, 242 [135 P. 961]; Treece v. Treece, 125 Cal.App. 726, 728 [14 P.2d 95].)
The judgment should be reversed.
Schauer, J., concurred.