Court Opinion

ID: 3769429
Source: CourtListenerOpinion
Date Created: 2016-07-06 07:22:33.540142+00
Date Added: 2024-06-11T18:04:55.437926
License: Public Domain

This concurring opinion is intended to emphasize certain facets of this appeal, which appear to this member of the court as peculiarly significant, and is in no sense to be interpreted as in derogation of the excellent opinion produced by my colleague.
The conclusion that the contract with which this appeal is concerned is not void because of fraud committed upon ALIA and its membership prior to its consummation is sound. A review of the record necessitates the position that the claim of fraud advanced by the intervenors is not supported by clear and convincing evidence, the measure of proof required to establish such fraud.
A second ground urged by the intervenors for declaring the contract void is much more troublesome. Intervenors suggest that the contract is void for failure of the department of insurance to comply with Ohio statutes. I quite agree with the observation of Judge Cole that our problem "is one of round statutory holes and a square peg contract." If that be true, the necessary conclusion is that the contract just doesn't fit into Ohio's statutory device, and it is of no help so far as this member of the *Page 231 
court is concerned to divide the contract into two distinct parts, one part an interim management contract for the control of ALIA assets by ILICA, and the other part a contract of merger or reinsurance subject to the approval of the commission required by Sections 3907.11 and 3907.12, Revised Code. That does not make the contract a peg sufficiently round to fit into the statutory hole.
The Superintendent of Insurance derives his authority from specific statutes. Chapter 3901, Revised Code, "Superintendent of Insurance," defines duties and outlines powers, provides for supervision and examination of companies, and includes provisions for the acquisition of companies and the possible relating of directorates. Chapter 3903, Revised Code, deals with the "Liquidation of Companies," which is done largely under the control of a Common Pleas Court. Chapter 3907, Revised Code, titled, "Domestic Legal Reserve Life Insurance Companies," is particularly important in this review because it deals with the formation, incorporation, and disposition of companies under department direction.
An examination of the chapters fails to reveal any statutory authority under which the Superintendent of Insurance may undertake an interim contract for the management of assets on behalf of a company licensed by the state of Connecticut. The contract under scrutiny can only be a contract contemplating merger or one providing for reinsurance. The fact that the contract here involved is titled "Reinsurance Agreement" is of no consequence. A reinsurance contract is characterized by the language employed in Section 3907.12, Revised Code, providing that a company may:
"* * * enter into a contract of reinsurance by which all of the policy obligations of one company, and such other liabilities as are specified in the contract are assumed by another company."
The identifying feature of reinsurance is the assumption of liabilities.
Merger or consolidation is possible under Section 3907.09, Revised Code, which provides for such by any *Page 232 
domestic life company. Merger entails the consolidation of both assets and liabilities. In the instant case, ILICA took over the assets of ALIA, and it matters not that an interim device was incorporated in the contract by which the Ohio Superintendent of Insurance took over the management of assets and the gradual retirement, or reissuance, of policy liabilities, the ultimate purpose of the contract was merger. The contract, or "Reinsurance Agreement," was designed to accomplish a backdoor merger without compliance with the statutory provision for a commission (Sections 3907.11 and 3907.12, Revised Code) to hear and determine, to approve and authorize:
"If satisfied that the interests of the policyholders of such company are properly protected, and that no reasonable objection exists thereto, * * *."
It must not be overlooked that the agreement puts title to the assets in ILICA "as the absolute owner thereof," and requires that notice be mailed to each ALIA policyholder "whose policy is assumed by ILICA." The contract is a contract of merger. In the light of statutory language, there is no such thing as a "hybrid" contract. It is either one or the other, but here it is clearly a merger contract.
A merger contract is only valid if it comes into existence under the requirements of Section 3907.11, Revised Code. (If it were reinsurance a similar requirement under Section 3907.12, Revised Code, would apply.) The record does not show compliance with the provision for a commission, and there is no record of approval and authorization "in writing" by a commission. The contract is "void" for lack of compliance.
Judge Cole sees the contract, not as void ab initio, but as a contract with an interim arrangement operating in the nature of a trust. It must be conceded that the practical fact is that the superintendent has in his hands assets of ALIA, which have been managed essentially as a trust. If the contract here considered is a two-phase document, then to conclude that there is an express trust is proper and logical. This member of the court prefers to regard the *Page 233 
"trust" to be best described as a "resulting" or "constructive" trust.
Most commonly, if a trust is regarded as "resulting," an intention to create a trust is implied. Such is doubtful in the instant case. The term, "constructive trust," is more in keeping with the present arrangement. The assets were wrongfully acquired — under an illegal contract, the trustee being without statutory authority to so function. It is of no consequence that the superintendent is now the trustee. His title came through ILICA, the company having received its title by illegal process, and the superintendent stands as a successor trustee, now holding assets which may accrue to the benefit of ILICA policyholders, when in equity they are for the benefit of the policyholders of ALIA. Wrongfully acquired in the first instance, they are still wrongfully acquired assets in the hands of the superintendent.
It is frequently said that both resulting and constructive trusts are creatures of equity designed to prevent unjust enrichment through mistake. As the arrangement stands today, as Judge Cole points out, ILICA, predecessor of the superintendent, holds the trust corpus, or the ALIA fund, for the benefit of ALIA policyholders, but if a merger were now to occur the assets of the American Fund would be mingled with the assets of ILICA, now in financial trouble and in the hands of the insurance department, a portion of which would accrue to the benefit of ILICA creditors. This would be a detriment to ALIA policyholders and an unjust enrichment to ILICA policyholders.
Distinctions as to resulting or constructive trusts are meaningless. Under threat of an unconscionable result either one will do, because "equity abhors unjust enrichment." In the instant case, the term "constructive" fits. (See 53 Ohio Jurisprudence 2d 575 et seq., Section 87 et seq., and Norris v.Norris [1943], 40 Ohio Law. Abs. 293, Second District Court of Appeals.)
Case law is scarce in Ohio. The Common Pleas Court of Cuyahoga County decided State, ex rel. Squire, v. Central *Page 234 United National Bank in 1935, 20 Ohio Law. Abs. 238, in which the Superintendent of Banks sought to set aside a trust, in which the defunct bank was both settlor and trustee, manipulating the corpus to its own convenience to the point where the term "illegal" was descriptive. The Superintendent of Banks, representing the general creditors of the bank under liquidation, sought the trust assets for the general creditors. The court refused him the right to do so. The position of the Superintendent of Insurance here is comparable to the position of the Superintendent of Banks in Central United.
The conclusion reached by Judge Cole that there is a "trust" in the instant case is quite correct, although this member of the court prefers to regard it as a constructive trust resulting from an illegal maneuver. Equitable relief is necessary.
I concur in the order directing the cause to be remanded to the trial court for further proceedings consistent with this decree, and according to law and the exercise of its inherent equitable powers.
COLE, J., of the Third Appellate District, sitting by designation in the Tenth Appellate District. *Page 235