Hudson v. Petrosurance, Inc.Hudson v. Petrosurance, Inc.
Rendered on August 25, 2009
Richard Cordray, Attorney General, by Outside Counsel McNamara and McNamara, LLP, Keith McNamara, and Jonathan M. Bryan, for plaintiff-appellee.
Beckman Weil Shepardson LLC, Peter L. Cassady, Laurie A. Lamb, and John Li, for defendant-appellant.
APPEAL from the Franklin County Court of Common Pleas.
FRENCH, P.J.
{¶2} Because this case arises out of the liquidation of The Oil & Gas Insurance Company (“OGICO“), a brief review of the liquidation proceedings is helpful. On August 31, 1990, the Franklin County Court of Common Pleas found that OGICO was insolvent and, pursuant to
{¶3} On August 21, 1991, defendant, Mark G. Hardy, “acting for himself and FORUM HOLDINGS USA, and any and all other entities owned, controlled or affiliated by or with him,” filed a proof of claim for an unstated amount, regarding “INTERCOMPANY BALANCES AND OTHER MONIES DUE.” Eleven years later, on August 19, 2002, the Liquidator sent a determination letter to Hardy‘s counsel, denying
{¶4} On January 9, 2006, the trial court authorized payment in full to all general creditors of OGICO whose claims the Liquidator had allowed. Claims of general creditors are classified as Class 5 claims under the Ohio statute establishing the priority of claims in insurer liquidations. See
{¶5} On April 20, 2007, the Liquidator filed a complaint for declaratory judgment against Petrosurance and Hardy.1 The Liquidator alleged that she had collected all of OGICO‘s assets, converted the assets to cash, considered all timely claims, and paid all allowed claims in full. The Liquidator requested a declaratory judgment that Petrosurance had no right to any remaining funds in her possession. Both defendants filed answers, and Petrosurance filed a counterclaim. In a judgment not relevant to this appeal, the trial court granted summary judgment in favor of the Liquidator on her claims against Hardy.
{¶7} After the dismissal of its counterclaim, Petrosurance submitted a proof of claim to the Liquidator on October 17, 2007, pursuant to
{¶8} On November 28, 2007, the Liquidator filed a motion for summary judgment on its declaratory judgment claim, arguing that Petrosurance had waived any claim to the surplus funds by not submitting evidence to support its claim and by not objecting to the denial of Hardy‘s 1991 claim. Although the Liquidator‘s complaint did not suggest how the surplus funds should be disposed of, her motion for summary judgment suggested a pro rata distribution of the surplus, in the nature of interest, to those creditors whose allowed claims have been paid. Petrosurance filed its own motion for summary judgment on May 30, 2008, requesting that the surplus funds be paid to it, either as OGICO‘s sole shareholder or as a Class 9 claimant, under
{¶9} On August 5, 2008, the trial court issued a decision granting the Liquidator‘s motion for summary judgment and granting in part and denying in part Petrosurance‘s motion for summary judgment.3 The trial court stated the issues as whether Petrosurance properly asserted a claim for the surplus funds and whether the Liquidator was permitted to pay interest to creditors who had been paid the principal of their allowed claims. The court concluded that, when funds in a liquidation estate exceed the sum of the allowed claims’ principal, the claimants are entitled to interest. Based on the Liquidator‘s representation that the remaining funds are insufficient to pay
{¶10} Petrosurance filed a timely notice of appeal and asserts the following assignments of error:
- The lower Court erred in dismissing Petrosurance‘s Counterclaim[.]
- The lower Court erred in granting the Motion for Summary Judgment filed by the Liquidator and in failing to grant Petrosurance‘s Motion for Summary Judgment[.]
In her conditional cross-assignment of error, the Liquidator asserts the following:
The lower court erred in not sustaining [the Liquidator‘s] Motion for Summary Judgment because Petrosurance did not timely submit evidence to support its claim to funds held by the Liquidator, and did not file a timely objection to the Liquidator‘s denial of its claim.
{¶11} We begin our analysis with Petrosurance‘s first assignment of error, by which it contends that the trial court erred in dismissing its counterclaim for a judgment declaring OGICO the sole owner of the funds held by the Liquidator or, alternatively, for judgment against the Liquidator in the amount of the surplus funds and for its attorney fees and costs. The Liquidator moved the trial court to dismiss the counterclaim, pursuant to
{¶13} The Liquidator argues that the express language of both
Upon entry of an order appointing a liquidator of a domestic insurer or of an alien insurer domiciled in this state, no civil action shall be commenced against the insurer or liquidator, whether in this state or elsewhere, nor shall any such existing actions be maintained or further prosecuted after the entry of the order. * * *
Paragraph 17 of the liquidation order similarly states that “[n]o civil action shall be commenced against Defendant OGICO or Liquidator, whether in this state or elsewhere, * * * after the entry of this Order.”
{¶14} When a statute conveys a clear, unequivocal, and definite meaning, courts must apply the statute as written. Benjamin v. Credit Gen. Ins. Co., 10th Dist. No. 04AP-642, 2005-Ohio-1450, ¶20, citing Columbus v. Breer, 152 Ohio App.3d 701, 2003-Ohio-2479, ¶12, and Covington v. Airborne Express, Inc., 10th Dist. No. 03AP-733, 2004-Ohio-6978, ¶13. “The court must give effect to the words used in the statute, accord the words their usual and customary meaning, and not delete words or insert words that are not used.” Benjamin at ¶20.
{¶16} In its second assignment of error, Petrosurance contends that the trial court erred by granting the Liquidator‘s motion for summary judgment and by not fully granting its own motion for summary judgment. Petrosurance identifies the following issues implicated by its second assignment of error: (1) whether the Liquidator had a
{¶17} We review a summary judgment de novo. Koos v. Cent. Ohio Cellular, Inc. (1994), 94 Ohio App.3d 579, 588, citing Brown v. Scioto Cty. Bd. of Commrs. (1993), 87 Ohio App.3d 704, 711. When an appellate court reviews a trial court‘s disposition of a summary judgment motion, it applies the same standard as the trial court and conducts an independent review, without deference to the trial court‘s determination. Maust v. Bank One Columbus, N.A. (1992), 83 Ohio App.3d 103, 107; Brown at 711. We must affirm the trial court‘s judgment if any grounds the movant raised in the trial court support it. Coventry Twp. v. Ecker (1995), 101 Ohio App.3d 38, 41-42.
{¶18} Pursuant to
{¶19}
{¶20}
(A) Proof of all claims shall be filed with the liquidator in the form required by
section 3903.36 of the Revised Code on or before the last day for filing specified in the notice required undersection 3903.22 of the Revised Code * * *.
* * *
(D) The liquidator may consider any claim filed late * * * and permit it to receive distributions which are subsequently declared on any claims of the same or lower priority if the payment does not prejudice the orderly administration of the liquidation. * * *
When the Liquidator denies a claim, in whole or in part, she must give written notice to the claimant or his attorney, after which the claimant may file objections with the Liquidator within 60 days.
{¶21} The Liquidation Act requires that an insolvent insurer‘s assets be distributed to classes of claimants based on the priorities of their claims. Fabe v. Am. Druggists’ Ins. Co. (1990), 70 Ohio App.3d 595, 603. Priority of distribution of allowed claims from the liquidation estate is established by
The priority of distribution of claims from the insurer‘s estate shall be in accordance with the order in which each class of claims is set forth in this section. Every claim in each class shall be paid in full or adequate funds retained for such payment before the members of the next class receive any payment. No subclasses shall be established within any class. The order of distribution of claims shall be:
(A) Class 1. The costs and expenses of administration * * *:
* * *
(B) Class 2. All claims under policies for losses incurred, including third party claims, all claims of contracted providers against a medicaid health insuring corporation for covered health care services provided to medicaid recipients, all
claims against the insurer for liability for bodily injury or for injury to or destruction of tangible property that are not under policies, and all claims of a guaranty association or foreign guaranty association. * * * Claims under nonassessable policies for unearned premium or other premium refunds.
(C) Class 3. Claims of the federal government.
(D) Class 4. Debts due to employees for services performed * * *.
(E) Class 5. Claims of general creditors.
(F) Class 6. Claims of any state or local government. * * *
(G) Class 7. Claims filed late or any other claims other than claims under divisions (H) and (I) of this section.
(H) Class 8. Surplus or contribution notes, or similar obligations, and premium refunds on assessable policies. * * *
(I) Class 9. The claims of shareholders or other owners.
If any provision of this section or the application of any provision of this section to any person or circumstance is held invalid, the invalidity does not affect other provisions or applications of this section, and to this end the provisions are severable.
{¶22} We begin our review of the second assignment of error with Petrosurance‘s stated issues concerning the Liquidator‘s authority to pay interest. Petrosurance frames those issues as follows:
Third Issue Presented: Whether
Chapter 3903 of the Ohio Revised Code authorizes the Liquidator to pay interest to claimants in the liquidation of an insurance company.Fourth Issue Presented: Whether the Liquidator is authorized to pay and claimants are entitled to receive interest on claims that have been paid in full by the Liquidator.
Fifth Issue Presented: Whether the Liquidator is barred from paying interest on allowed claims because the order authorizing the payment of claims bars any further claims against the Liquidator, including those for interest.
Sixth Issue Presented: Whether payment of interest to other claimants has priority over shareholders’ claims.
Because they are interrelated, we address these issues together.
{¶24} As a general rule, interest on claims against the property of an insolvent, accruing after the insolvent‘s property passes into a receiver or liquidator‘s hand, is not recoverable. Am. Iron & Steel Mfg. Co. v. Seaboard Air Line Ry. (1914), 233 U.S. 261, 266, 34 S.Ct. 502, 504; Matter of People (Norske Lloyd Ins. Co.) (1928), 249 N.Y. 139, 146-47. Although delay in payment as a consequence of liquidation injures the creditor, “[w]hen the [liquidation estate] is insufficient to pay in full all the creditors who have the right to share in it, the burden of the consequent loss and injury should be equitably distributed among the creditors.” Id. at 147. The United States Supreme Court explained that the general rule:
* * * is a necessary and enforced rule of distribution, due to the fact that in case of receiverships the assets are generally insufficient to pay debts in full. If all claims were of equal dignity and all bore the same rate of interest, from the date
of the receivership to the date of final distribution, it would be immaterial whether the dividend was calculated on the basis of the principal alone or of principal and interest combined. * * * [I]n case funds are not sufficient to pay claims of equal dignity, the distribution is made only on the basis of the principal of the debt. * * *
Am. Iron at 266, 34 S.Ct. at 504. However, the Supreme Court went on to state that the general rule “did not prevent the running of interest during the Receivership; and if as a result of good fortune or good management, the estate proved sufficient to discharge the claims in full, interest as well as principal should be paid.” Id. In Matter of People at 147, the court similarly stated that the general rule is inapplicable “when the reason for the rule fails” and held that, “[i]f the fund in liquidation proves sufficient to pay all claims in full with interest, then interest accruing during liquidation is allowed.” Based on that rationale, and citing a litany of cases in which courts have applied that rationale in the context of bank liquidations, the Liquidator maintains that the paid claimants are entitled to interest from the surplus funds.
{¶25} We do not disagree with the policy basis for paying interest on creditors’ claims before returning funds to the shareholders or owners of a liquidated entity where payment of all principal claims leaves a surplus in the liquidation estate. In fact, many states have legislatively incorporated provisions to that effect into their insurer liquidation priority schemes. Most states that have provided for interest payments by statute in this context have established a separate priority class, encompassing interest on higher priority claims, above the class for claims of shareholders or owners. See
{¶26} Ohio, however, like the majority of states, has not addressed the availability of interest on claims against a liquidated insurer by statute. Because neither Am. Iron nor Matter of People involved the application of statutory priorities like those contained in
{¶27} Petrosurance urges this court to follow the reasoning of the Supreme Court of Texas in Huston v. Fed. Deposit Ins. Corp. (Tex.1990), 800 S.W.2d 845, a bank liquidation case. Like
{¶28} In contrast to Huston and Stephens, other courts have permitted the payment of interest despite silence regarding interest in state priority statutes, and the Liquidator urges us to follow the reasoning of those cases. For example, in Koken v. Colonial Assur. Co. (Pa.Cmwlth.2005), 885 A.2d 1078, the Pennsylvania court held that the liquidator was authorized to pay interest to claimants where the estate contained a surplus, but that the liquidator was not authorized to restrict interest solely to the highest classes of creditors. The Pennsylvania court relied on prior cases from that state following the rationale of Am. Iron.
{¶29} In Wenzel v. Holland-America Ins. Co. Trust (Mo.2000), 13 S.W.3d 643, the Supreme Court of Missouri affirmed an award of interest accruing between the court‘s declaration of insolvency and the payment of each allowed claim where the receivership assets exceeded the sum of the allowed principal claims despite the absence of a specific provision for interest in the state insurance code. The court held that the absence of specific statutory language regarding the payment of interest did not end its inquiry, even though the insurance code was the exclusive source of the liquidator‘s authority. Based on a statutory provision authorizing the liquidator to
{¶30} Upon review, we conclude that the Liquidator‘s position regarding interest is irreconcilable with the unambiguous language of the Liquidation Act. Accordingly, we disagree with the trial court‘s statement that nothing in
{¶31} First, while
The liquidator shall review all claims duly filed in the liquidation and shall make such further investigation as he considers necessary. He may compound, compromise, or in any other manner negotiate the amount for which claims will be recommended to the court * * *. Unresolved disputes shall be determined under
section 3903.39 of the Revised Code . * * *
The language of
{¶32} Second,
{¶33} Our conclusion that the General Assembly did not intend that interest be available to creditors in an insurer liquidation is further aided by our examination of the General Assembly‘s treatment of priority in another liquidation context. See Ratchford v. Proprietors’ Ins. Co. (1989), 47 Ohio St.3d 1 (finding it instructive to look at the statutory scheme dealing with liquidations of insolvent saving and loan associations as an indicator of the General Assembly‘s intent under
{¶34} Like
{¶35} We acknowledge the potential unfairness of denying interest to creditors of an insurer in liquidation where, as here, the liquidation estate proves sufficient to pay the principal amount of all allowed claims and a surplus remains. Liquidation proceedings will, of necessity, result in delay in the payment of claims, and the delay, in turn, will result in loss to creditors whose recovery is postponed. Nevertheless, the remedy for any such unfairness must stem from legislative action, not from a decision of this court. Numerous state legislatures have taken steps to eliminate the unfairness that may result in situations like this by expressly incorporating the payment of interest into their statutory priority schemes. While the General Assembly addressed the payment of interest in
{¶37} It is undisputed that the Liquidator‘s representatives provided Petrosurance with a proof of claim form in 2006 and suggested that Petrosurance needed to complete it to assert a right to the surplus funds. After Petrosurance submitted the proof of claim to the Liquidator, the Liquidator returned it unfiled, stating that she “must reject the attempt to file the claim and cannot open or reopen a claim file in the OGICO liquidation estate” because the claim was submitted after the December 31, 1997 bar date, which elapsed nearly ten years before the Liquidator gave the form to Petrosurance. The Liquidator also suggested that Petrosurance‘s proof of claim constituted a “second shot” at Hardy‘s 1991 claim, which the Liquidator denied in 2002.
{¶38} Petrosurance maintains that, having provided the proof of claim form to Petrosurance in 2006, the Liquidator is equitably estopped from refusing to file, consider, and approve its claim. ” ‘Equitable estoppel prevents relief when one party
{¶39} As a general rule, estoppel does not apply against the state, its agencies or agents in the exercise of governmental functions. See Sun Refining & Marketing Co. v. Brennan (1987), 31 Ohio St.3d 306, 307; State ex rel. Glasstetter v. Connelly, 179 Ohio App.3d 196, 2008-Ohio-5755, ¶12. Some courts, however, have concluded that a state agent, acting as a liquidator, engages in functions that are more proprietary than governmental. See, e.g., State ex rel. Merion v. Unemployment Comp. Bd. of Review (App.1943), 68 N.E.2d 411, 45 Ohio Law Abs. 614; In re Reliance Group Holdings, Inc. (Bankr.E.D.Pa.2002), 273 B.R. 374. In fact, this court recently noted that the Superintendent of Insurance, as liquidator, is essentially a court appointed private trustee who, for all practical purposes, stands in the insurer‘s shoes, and that any benefit in an action initiated by the liquidator accrues, not to the state, but to the insured‘s members, shareholders, policyholders, and creditors. Benjamin v. Ernst & Young, L.L.P., 167 Ohio App.3d 350, 2006-Ohio-2739, ¶15, 18. This court has also acknowledged, in a case involving an estoppel defense against the Liquidator‘s
{¶40} Nevertheless, we conclude that the doctrine of equitable estoppel is inapplicable here. Hardy states that “the Chief Deputy Liquidator [and] counsel for the Liquidator * * * suggested to [Hardy] that Petrosurance should submit a standard proof of claim form to more fully assert its rights to [the] surplus as a shareholder, and they presented him a form they had prepared for Petrosurance‘s use in that respect and upon which they had caused Petrosurance‘s name to be imprinted.” Hardy Affidavit, at ¶8. Petrosurance argues that it filed its proof of claim in reliance on the Liquidator‘s actions and that, as a result, the Liquidator should be estopped from denying its claim. We disagree. The record contains no evidence that Petrosurance suffered a detriment as a result of its supposed reliance on the Liquidator‘s suggestion that it file a proof of claim. Although the Liquidator refused to consider Petrosurance‘s 2007 proof of claim, Petrosurance is in no worse position, having attempted to file the proof of claim, than it would have been had it not filed a proof of claim. Accordingly, we reject Petrosurance‘s estoppel argument.
{¶41} We now turn to the Liquidator‘s stated bases for refusing to file Petrosurance‘s proof of claim, i.e., that the claim was barred by (1) the December 31, 1997 absolute final bar date, and (2) the Liquidator‘s denial of Hardy‘s 1991 proof of claim. We first consider the effect, if any, of Hardy‘s 1991 proof of claim on Petrosurance‘s 2007 proof of claim. Hardy filed the 1991 proof of claim for unstated intercompany balances and other monies due on behalf of all entities owned, controlled or affiliated by or with him. The proof of claim form contained various boxes that could
{¶42} When the Liquidator denied the 1991 proof of claim, the determination letter stated that the Liquidator determined that the claim was a Class 5 claim of a general creditor and that the Liquidator valued the claim in the amount of $0.00 based on it being filed in an unstated amount and having not been updated or supported. The Liquidator noted that its records reflected no balance due either Forum Holdings or Hardy. The Liquidator‘s determination, by its terms, denied Class 5, general creditor claims by the entities on whose behalf Hardy filed the proof of claim. Neither Hardy, Forum Holdings USA, nor any other entity filed objections to the denial of the 1991 proof of claim, and the right of those entities to object to the Liquidator‘s denial of their Class 5 claims was extinguished pursuant to
{¶43} We disagree with the Liquidator‘s contention that Petrosurance‘s claim to the surplus funds was encompassed by the 1991 proof of claim. Although Petrosurance is arguably included within the class of claimants on whose behalf Hardy filed the 1991 proof of claim, as an entity owned, controlled or affiliated by or with Hardy, there is no indication in either the proof of claim or the Liquidator‘s denial of the claim that the proof of claim encompassed a shareholder claim for surplus funds. Accordingly, Petrosurance had no basis for filing objections regarding a Class 9 shareholder claim because neither the proof of claim nor the Liquidator‘s denial encompassed such a
{¶44} The Liquidator also maintains that she had to refuse Petrosurance‘s proof of claim because she has no authority to accept claims filed after an absolute final bar date. Thus, the Liquidator asserts that the trial court‘s establishment of December 31, 1997, as an absolute final bar date precluded the 2007 proof of claim despite
[A]ny unknown claim (1) yet to be asserted which would be purported to be covered by any Proof of Claim * * * which was timely filed with the Liquidator by August 31, 1991, but which was filed without any knowledge of or documentation to support a future claim; (2) which, if asserted, would be asserted under policies of insurance or bonds issued by OGICO; and (3) which is not reported to the Liquidator by December 31, 1997. * * *
(Emphasis added.) The Notice of Establishment of Absolute Final Bar Date and Foreclosure of Future Claims approved by the trial court stated: “This Notice only applies to Future Claims as defined herein.” Because Petrosurance‘s shareholder claim
{¶45} Having concluded that Petrosurance did not waive its right to file a claim for the surplus funds, that the absolute final bar date did not apply to Petrosurance‘s shareholder claim, and that the payment of interest to higher priority claimants is not permitted under
{¶46} We do not, however, determine that Petrosurance was, as a matter of law, entitled to a contrary declaratory judgment that it was solely entitled to the surplus funds. The trial court properly dismissed Petrosurance‘s counterclaim for lack of subject-matter jurisdiction. In dismissing the counterclaim, the court held that Petrosurance‘s right to funds from the liquidation estate must be established through the procedures set forth in
{¶47} In conclusion, we overrule Petrosurance‘s first assignment of error and affirm the trial court‘s judgment dismissing Petrosurance‘s counterclaim. We sustain Petrosurance‘s second assignment of error to the extent stated above, and we overrule the Liquidator‘s cross-assignment of error. Therefore, we reverse the trial court‘s entry of summary judgment in favor of the Liquidator and denial of Petrosurance‘s motion for summary judgment solely to the extent it sought a denial of the Liquidator‘s requested declaratory relief. We remand this matter to the trial court for further proceedings consistent with this decision.
Judgment affirmed in part, reversed in part, and cause remanded.
SADLER and CONNOR, JJ., concur.