Court Opinion

ID: 9573443
Source: CourtListenerOpinion
Date Created: 2023-08-21 20:55:16.990749+00
Date Added: 2024-06-11T12:40:57.611176
License: Public Domain

TOAL, Chief Justice:
I respectfully dissent. I would hold the Reserve Deposit Fund Agreements (“RDFA”) are covered under the South Carolina Life and Accident and Health Insurance Guaranty Act (“Guaranty Act”), codified at S.C.Code Ann. § 38-29-10, et seq. (Supp.2000).
The Guaranty Act creates the South Carolina Life and Accident and Health Insurance Association (“Association”). S.C.Code Ann. § 38-29-50. The Association is comprised of all insurers authorized to transact business in this State. It guarantees, assumes, or reinsures the contractual obligations *446of insurers who become financially unable to meet their obligations. S.C.Code Ann. § 38-29-70. However, the Guaranty Act only affords protection to defined policies as set forth in section 38-29-40. The question now before this Court concerns whether the RDFA’s issued by Liberty Life are “covered policies” included in the definition of section 38-29-40.
Section 38-29-40 (1) provides:
This chapter applies to direct life insurance policies, accident and health insurance policies, annuity contracts, and contracts supplemental to life and accident and health insurance policies and annuity contracts issued by persons authorized to transact insurance in this State at any time.
At issue here is the provision in the RDFA contracts which allow the trustee to partially withdraw funds “to pay any benefit under the retirement plan such as a lump sum distribution, installment payment, or any annuity.” The condition specifically provides:
Under the terms of the Trust, life insurance coverage is being purchased from the Company on the lives of the individual participants covered by the Trust. We guarantee for a period of up to ten years from the Effective Date of this Agreement that the Settlement Option provisions contained in such policy or policies may be used as the basis for the annuity purchase guarantees whereby a single sum may be applied to purchase a stated amount of life income .... (emphasis added)
In order to provide for the accumulation of the supplementary amounts necessary to purchase the retirement annuities to which participants mil become entitled under the Trust there is hereby established in the name of the Trustee a [RDFA] to which the Employer ... through the Trustee will make contributions ... (emphasis added)
In deciding whether the RDFA’s are covered policies, the Court should consider the legislative intent behind the Act in its entirety. Joiner v. Rivas, 342 S.C. 102, 536 S.E.2d 372 (2000) (a cardinal rule of statutory construction is to ascertain the intent of the legislature). The legislature has clearly directed that “[t]his chapter must be liberally construed to effect the purpose under section 38-29-30 which constitutes an aid and guide to interpretation.” S.C.Code Ann. § 38-29-200.
*447The purpose of the Guaranty Act is expressed by the legislature as follows:
The purpose of this chapter is to maintain public confidence in the promises of insurers by providing a mechanism for protecting policy owners, insureds, beneficiaries, annuitants, payees, and assignees of life insurance policies, accident and health insurance policies, annuity contracts, and supplemental contracts against failure in the performance of contractual obligations due to the impairment of the insurer issuing these policies or contracts.
S.C.Code Ann. § 38-29-30 (Supp.2000).
The Majority hold the Guaranty Act only covers annuity contracts or agreements which “make periodic payments ... at specific intervals” but does not cover contracts or agreements to purchase annuities which “make periodic payments ... at specific intervals.” This is a distinction without a difference. The Association was set up to protect the beneficiary, and under either scenario above, the effect on a beneficiary when an Insurance Company fails is the same. The loser is always a beneficiary who has no control over the decisions of the trustee. If the trustee chooses unwisely, or purchases from an inadequately funded source, the beneficiary will suffer the loss of his retirement benefits. This is the exact situation the Guaranty Association was set up to prevent. The Association was designed to protect the policy holder from an insurance company’s failure or inability to honor its contractual obligations. In the instant case, Liberty Life has assumed the responsibility for Investment Life Insurance Company’s failure. However, in the future, there may not be such a company to step in and honor the contracts, which here consisted of a policy holder’s retirement benefits. Retirement benefits are a necessity for many citizens of this State, and allowing contracts such as the RDFA’s to escape coverage on the technical distinction between an “annuity contract” and a “contract to purchase an annuity” undermines the purpose of the Act and would have a dramatic impact on the financial stability of many retirees.
Furthermore, it is important to consider that these RDF As are annuity insurance products, sold only by licensed insurance companies after approval by the South Carolina Depart*448ment of Insurance. What possibly could the legislature have intended the Guaranty Association to cover if not insurance products, sold by licensed insurance companies and approved by the Insurance Commission?
Finally, the Majority attempts to distinguish those decisions of other states which have found similar contracts to be within the protection afforded by the particular state’s guaranty act. See, e.g., Board of Trustees of the Md. Teachers & State Employees Supplemental Retirement Plans v. Life & Health Ins. Guar. Corp., 385 Md. 176, 642 A.2d 856 (1994); Minnesota Life & Health Ins. Guar. Ass’n v. Department of Commerce, 400 N.W.2d 769 (Minn.Ct.App.1987); and Unisys Corp. v. Pennsylvania Life & Health Ins. Guar. Ass’n, 667 A.2d 1199 (1995), aff'd 546 Pa. 256, 684 A.2d 546 (1996). The Majority finds these cases were decided based on definitions of “annuities” which are distinguishable from our own. However, the Majority adopts much of the reasoning of the courts in Bennet v. Virginia Life, Accident & Sickness Ins. Guar. Ass’n, supra, Arizona Life & Disablility Ins. Guar. Fund v. Honeywell, Inc., supra, and Krahling v. First Nat’l Ass’n, supra, where similar contracts were found not to be covered under their state’s respective guaranty acts. Yet these states, as the majority admits, also have definitions of “annuities” which are distinguishable from our own. Again, the Majority is attempting to make a distinction without a difference.
Consistent with policy, purpose, and legislative intent, I would hold the RDFA’s are “annuity contracts” covered under South Carolina’ Guaranty Act.