Court Opinion

ID: 9790110
Source: CourtListenerOpinion
Date Created: 2023-08-31 01:46:16.93579+00
Date Added: 2024-06-11T07:37:26.265519
License: Public Domain

SOSA, Senior Justice, dissenting. I respectfully dissent. NMSA 1978, Section 59-22-13(F) provides that “[t]he Life Insurance Guaranty Act shall not apply to any insurer which is insolvent or unable to fulfill its contractual obligations on the effective date of the act.” An insolvent insurer is defined by Section 59-22-4(F)(2) as an insurer “determined to be insolvent by a court of competent jurisdiction.” Neither Western American nor Western Investors was statutorily insolvent on the effective date of the Life Insurance Guaranty Act (Act). The parties stipulated that Western American was unable to fulfill its contractual obligations on the effective date of the Act, April 9,1975. The question before this Court is therefore whether Western Investors was unable to fulfill its contractual obligations on the effective date of the Act. Western American was placed in receivership and declared insolvent on May 15, 1975, only a few short weeks after the passage of the Act. Western Investors, however, continued to meet its contractual obligations for three years after the passage of the Act and was not declared insolvent until 1981. In the years following the enactment of the Life Insurance Guaranty Act, NMSA 1978, Sections 59-22-1 through 59-22-17, the Guaranty Association as well as Western Investors apparently regarded Western Investors’ policies as covered by the Act. Western Investors’ 5,000 policyholders continued to pay premiums and the Guaranty Association taxed Western Investors as a member until 1981. Western Investors’ policyholders have therefore indirectly paid for the coverage the majority opinion now denies them. The express purpose of the Act is, inter alia, “to avoid financial loss to claimants or policyholders because of the insolvency of an insurer.” NMSA 1978, § 59-22-2. See New Mexico Life Insurance Guaranty Association v. Moore, 93 N.M. 47, 596 P.2d 260 (1979). Section 59-22-17 directs that “[t]he Life Insurance Guaranty Act shall be liberally construed to effect its purpose.” Other courts in resolving guaranty act interpretation questions have held that “the act must be interpreted to protect policyholders and claimants and to advance their interests rather than the interests of the Association.” New Jersey Property-Liability Insurance Guaranty Association v. Sheeran, 137 N.J.Super. 345, 351, 349 A.2d 92, 95 (1975). See also Louisiana Insurance Guaranty Association v. Guglielmo, 276 So.2d 720 (La.App.1973); Mississippi Insurance Guaranty Association v. Gandy, 289 So.2d 677 (Miss.1973). Policyholders understandably continued to pay premiums and buy policies after the effective date of the Act from companies that continued to pay claims. These policyholders have a right to expect their companies to be covered by the Act. The asset evaluations relied on by the majority in determining that Western Investors was unable to meet its contractual obligations on April 9, 1975 are not those reported by the company on the effective date of the Act. The figures used to identify Western Investors as “disabled” in 1975 are revised estimates of Western Investors’ assets and liabilities in April of 1975 that are based on information that came to light after an examination of Western Investors’ books seven years later. I cannot believe that the Legislature intended to exclude from the Act’s coverage, many years after the Act’s effective date, those insolvent companies whose reconstructed balance sheets allegedly disclosed, on April 9, 1975, a risk of future failure. Such an interpretation creates uncertainty as to the Act’s application and results in a narrow construction that serves only the insurance industry, not the policyholders the Act was designed to protect. Even using the Guaranty Association’s “hindsight” analysis, it is far from clear that on April 9, 1975, Western Investors was unable to pay its future policy obligations and was therefore destined to fail. In view of the receiver’s accountant’s testimony that with better management Western Investors need not have failed, the trial court’s finding that Western Investors was not unable to meet its current and future policy obligations would seem to me to be reasonable and supported by substantial evidence. I would hold that the policies of Western Investors are covered by the Act, including the policies acquired from Western American. The Guaranty Association has not challenged the trial court’s finding that: Western Investors’ acquisition of Western American assets and policies in 1976 was done appropriately, with Court approval, as a legitimate transaction, and there has never been any common ownership, control or legal affiliation between Western Investors and Western American which would make the transaction suspect. The acquisition of former Western American insurance and assets by Western Investors was not the cause of Western Investors’ ultimate insolvency. Western Investors’ reinsurance of Western American policies resulted in drastically reduced policy benefits with no corresponding reduction in premiums. The fact that Western American policies were not covered by the Act in 1975 does not justify the exclusion of Western Investors’ policies from the Act’s coverage merely because those policies were originally issued by Western American. The Guaranty Association is not being asked to cover losses that took place prior to Western Investors’ acquisition of Western American’s policies. The majority’s interpretation of Section 59-22-13(F) is not supported by legislative design or by logic, and it is inconsistent with the expressed purposes of the Act. The judgment of the trial court should be affirmed.