UNDERWRITERS NATIONAL ASSURANCE CO. v. NORTH CAROLINA LIFE & ACCIDENT & HEALTH INSURANCE GUARANTY ASSN. ET AL.
No. 80-1496
Supreme Court of the United States
Argued November 9, 1981—Decided March 24, 1982
455 U.S. 691
Theodore R. Boehm argued the cause for petitioner. With him on the briefs was Charles T. Richardson.
William S. Patterson argued the cause for respondents. With him on the brief were Rufus L. Edmisten, Attorney General of North Carolina, Richard L. Griffin, Assistant Attorney General, Charles D. Case, and Eugene Gressman.
JUSTICE MARSHALL delivered the opinion of the Court.
In this case, the North Carolina Court of Appeals held that an Indiana court was without jurisdiction to adjudicate the rights of various parties in a $100,000 deposit held in trust by certain North Carolina officials. Because it found that the Indiana court did not have jurisdiction, the North Carolina court refused to recognize the Indiana court‘s prior ruling that all claims to the deposit were compromised, settled, and dismissed by the final order entered by that court during a
I
Petitioner Underwriters National Assurance Co. (Underwriters) is an Indiana stock insurance сorporation specializing in life and disability insurance for certain high-income professional groups. In 1973 Underwriters was licensed to do business in 45 States, including North Carolina, and was administering over 50,000 policies. To qualify to do business in North Carolina, Underwriters was required to join respondent North Carolina Life and Accident and Health Insurance Guaranty Association (North Carolina Association), a state-created association of all foreign and domestic insurance companies operating in North Carolina. See
In June 1973, after determining that Underwriters’ financial condition was questionable, the North Carolina Commissioner of Insurance informed Underwriters that it must post a $100,000 deposit “for the sole benefit of North Carolina policyholders,” to continue to do business in that State. Shortly thereafter, Underwriters deposited with the State a $100,000 bond registered to the “Treasurer of the State of North Carolina in trust for the Underwriters National Assur-
The North Carolina Commissioner‘s fears about Underwriters’ financial condition proved to be well founded. Approximately one year after Underwriters posted this bond, the Indiana Department of Insurance commenced rehabilitation proceedings against petitioner on the ground that its reserves were inadequate to meet its future policy obligations. By order dated August 5, 1974, the Superior Court for Marion County (Rehabilitation Court)1 appointed the Indiana Commissioner of Insurance as Rehabilitator and directed him to “take possession of the business and assets of Underwriters... and conduct the business thereof and appoint such personnel as may be necessary to rehabilitate Underwriters.” Notice of this action was sent to all state insurance commissioners, including respondent North Carolina Commissioner. The North Carolina Commissioner immediately informed the North Carolina Association that Underwriters was undergoing rehabilitation in Indiana, and that title to all assets of Underwriters had been transferred to the Indiana Rehabilitator.
Shortly after entering the order of rehabilitation, the Rehabilitation Court enjoined the commencement or prosecution of any suit against Underwriters or the Rehabilitator. This injunction stayed several policyholder actions that had been filed against Underwriters, and required that any person who desired to institute or to prosecute any such action
The Rehabilitation Court sent notice of the rehаbilitation proceeding to all policyholders, informing them that the class had been certified, and that all members not requesting exclusion would be bound by the judgment of the Rehabilitation Court. The notice concluded by stating that “[t]he entire court file” was available to any class member.4
Over the next two and one-half years, the Rehabilitation Court supervised the efforts of the Rehabilitator and other interested parties to return Underwriters to a sound financial footing. After extensive negotiations between Underwriters, the class representatives, and other interested parties, the Rehabilitator submitted a Proposed Plan to the Rehabilitation Court in April 1976. In order to preserve the financial
“The guaranty associations in some states may have obligations to [Underwriters‘] policyowners as a result of the [Underwriters] rehabilitation proceeding. Moreover, to the extent such guaranty associations do have obligations, there is a possibility that those guaranty associations may seek to recover from [Underwriters] sums paid to [Underwriters‘] policyowners. The Rehabilitation Plan should resolve [Underwriters‘] contingent liability to any guaranty association by determining that [Underwriters] has no further obligation or liability to any guaranty association.” Id., at 89 (emphasis added).
By direction of the Rehabilitation Court, the Rehabilitator mailed a copy of this Proposed Plan to all interested parties, including all state guaranty associations and insurance commissioners. The Rehabilitator subsequently sent to the guaranty associations notice of a hearing to consider various rehabilitation plans, including that of the Rehabilitator.
On June 8, 1976, these eight guaranty associations, including the North Carolina Association, intervened in the Indiana rehabilitation proceeding. In their motion to intervene, the guaranty associations stated that Part X(C) of the Proposed Plan was “unacceptable,” and that through negotiations, the associations and the Rehabilitator had agreed on a modification that would “protect the rights of the Guaranty Associations.” In relevant part,6 the guaranty associations proposed that Part X(C) be changed to read as follows:
“[Underwriters shall have] no further obligation or liability to any guaranty association other than the obligation to recognize as valid the assignment of the policyowner‘s rights to the guaranty association and to treat the guaranty association as it would have treated the policyowner; provided, however, if any guaranty association makes any payment to or on behalf of any policyowner which is not fully reimbursed pursuant to the foregoing
provisions, that association shall receive from [Underwriters] each year until fully reimbursed a portion of [Underwriters‘] statutory net gain from operations after dividends to policyowners, federal income taxes and the payments to be made under Part XI equal to the annual premium in force for basic coverage in the state of that association on August 5, 1974, divided by the total annual premiums in force for basic coverage of [Underwriters] on August 5, 1974.” Id., at 105 (emphasis added).
After a full hearing in which the North Carolina Association participated, the Rehabilitation Court tentatively approved the Proposed Plan, including the above modification. The court directed the Rehabilitator to send notice to all interested persons that on October 14, 1976, a final hearing would be held on the Plan and the settlement of all claims against Underwriters. The notice sent by the Rehabilitator to Underwriters, the North Carolina Commissioner of Insurance, and all other interested parties specified that “[t]he Proposed Rehabilitation Plan provides in part XIII that upon [its] final approval... all claims against [Underwriters] by policyowners or others are compromised and dismissed.” At the request of the eight guaranty associations, the Rehabilitation Court subsequently approved a special mailing to policyholders in their respective States explaining that the guaranty associations were statutorily obligated under certain circumstances to continue to provide the benefits compromised by the Indiana court under the Rehabilitation Plan.
In Nоvember 1976, after holding final hearings in which the North Carolina Association participated, the Rehabilitation Court approved a Plan of Rehabilitation, which was, with respect to issues relevant here, identical to the Proposed Plan. In its order adopting this Plan, the Rehabilitation Court stated that it had “jurisdiction over the subject matter and over the parties, including... all [Underwriters]
On June 8, 1977, Underwriters and the eight guaranty associations, including the North Carolina Association, invoked the Rehabilitation Court‘s continuing jurisdiction to request that it approve a “Service Contract,” under which Underwriters would continue to service policyowners residing in these States at pre-rehabilitation levels in return for a fee paid by the associations.7 The Rehabilitation Court approved the proposed contract and directed that Underwriters and the associations execute this agreement “in substantially the form” presented to the court. Pursuant to this order, Underwriters and seven of the guaranty associations executed the Service Contract without incident. Before the North Carolina Association executed its Service Contract, however, it made an addition to the document previously presented to the cоurt. Specifically referring to Underwriters’ $100,000
“It is expressly agreed, however, that the Guaranty Association and Underwriters explicitly reserve all their rights and remedies in connection with any deposits made by Underwriters with the Commissioner of Insurance of North Carolina, including deposits understood to total One Hundred Thousand Dollars ($100,000.00), which rights and remedies are governed by North Carolina law.” E. B. 34.
Underwriters signed the revised agreement, but it made clear in a cover letter accompanying the signed agreement its understanding that the above paragraph was intended only to preserve any future rights that the North Carolina Association may have in the $100,000 deposit. Any other interpretation of this paragraph, the letter concluded, would be unacceptable because the “Plan of Rehabilitation had the effect of shutting off rights that North Carolinа citizens and/or the Guaranty Association might otherwise have had to the deposits” prior to rehabilitation. Id., at 35.
The North Carolina Association responded to this letter by filing suit against Underwriters, the North Carolina Commissioner of Insurance, and the State Treasurer, in the Superior Court of Wake County, N. C. The complaint prayed for a declaratory judgment that the North Carolina Association was entitled to use the $100,000 deposit to fulfill the pre-rehabilitation contractual obligations to North Carolina policyowners that had been compromised in the rehabilitation proceeding. The North Carolina Commissioner and Treasurer filed a cross-claim against Underwriters, also requesting that the deposit be liquidated for the benefit of the North Carolina Association and North Carolina policyholders. Underwriters answered, asserting that the Indiana judgment
Invoking the Rehabilitation Court‘s continuing jurisdiction to resolve all questions invоlving the interpretation of the Plan, Underwriters filed a petition for instructions in July 1978. The Rehabilitation Court granted the petition, and sent notice to the North Carolina Association, the North Carolina Commissioner and Treasurer, and to all other parties to the rehabilitation proceeding. On September 22, 1978, the Rehabilitation Court held a hearing, at which both Underwriters and the North Carolina Association appeared and presented their respective full-faith-and-credit claims. In an opinion dated November 22, 1978, the Rehabilitation Court held that the 1976 Rehabilitation Plan “fully adjudicated and determined that the North Carolina deposit was an asset of... Underwriters, and any claim existing as of the date of adoption of the Plan... was compromised, settled and dismissed by the final Order and the Plan.” App. to Pet. for Cert. 38A. In reaching this conclusion, the Rehabilitation Court specifically noted that the North Carolina Association had never made any claim to the deposit, even though the $100,000 had been included, without objection, in the general assets of Underwriters listed in Part V of the Plan. See n. 4, supra. The court went on to state that, although it probably had the power to enjoin the North Carolina Association from proceeding in North Carolina, it declined to do so because it believed that the North Carolina state court would recognize its judgment as binding.8
After receiving the Rehabilitation Court‘s ruling, Underwriters moved for summary judgment in the North Carolina state trial court, as did the respondents, the North Carolina Association and the North Carolina officials. The trial court
On appeal, the North Carolina Court of Appeals affirmed, substantially for the reasons expressed by the trial court. 48 N. C. App. 508, 269 S. E. 2d 688 (1980). The Court of Appeals emphasized that the North Carolina Association sought to protect “statutory,” as opposed to “contractual,” rights; that title and rights to the $100,000 were vested by law in the State Commissioner and Treasurer, thus depriving the Rehabilitation Court of subject matter jurisdiction over the deposit; and that the Rehabilitation Court did not have in personam jurisdiction over these officials. Id., at 517, 269 S. E. 2d, at 694. The Court of Appeals concluded that the deposit could never be an asset of Underwriters, and that the Rehabilitation Court‘s decision to the contrary was not entitled to full faith and credit. The North Carolina Supreme Court declined to grant discretionary review. 301 N. C. 527, 273 S. E. 2d 453 (1980).
II
The concept of full faith and credit is central to our system of jurisprudence. Ours is a union of States, each having its
To be sure, the structure of our Nation as a union of States, eaсh possessing equal sovereign powers, dictates some basic limitations on the full-faith-and-credit principles enumerated above. Chief among these limitations is the caveat, consistently recognized by this Court, that “a judgment of a court in one State is conclusive upon the merits in a court in another State only if the court in the first State had power to pass on the merits—had jurisdiction, that is, to render the judgment.” Durfee v. Duke, 375 U. S. 106, 110 (1963).10
The North Carolina courts relied on this limitation in refusing to give full faith and credit to either the 1976 judgment or the 1978 judgment of the Rehabilitation Court. Respondents argue, and the North Carolina courts held, that the Rehabilitation Court was powerless to determine that the North Carolina deposit was an asset of Underwriters. Specifically, respondents contend that the Rehabilitation Court lacked both jurisdictiоn over the subject matter and jurisdiction over the relevant parties.
A
The North Carolina courts held that the Guaranty Act and the Deposit Act deprived the Rehabilitation Court of the subject matter jurisdiction to determine rights in the $100,000 deposit. Regardless of the validity of this holding as a matter of North Carolina law,11 it is not an appropriate ground for
This Court has long recognized that “[t]he principles of res judicata apply to questions of jurisdiction as well as to other issues.” American Surety Co. v. Baldwin, 287 U. S. 156, 166 (1932). See also Treinies v. Sunshine Mining Co., 308 U. S. 66, 78 (1939); Davis v. Davis, 305 U. S. 32 (1938). Any doubt about this proposition was definitively laid to rest in Durfee v. Duke, supra, at 111, where this Court held that “a judgment is entitled to full faith and credit—even as to questions of jurisdiction—when the second court‘s inquiry discloses that those questions have been fully and fairly litigated and finally decided in the court which rendered the original judgment.”13 The North Carolina courts, therefore, should have determined in the first instanсe whether the Rehabilitation Court fully and fairly considered the question of subject matter jurisdiction over the North Carolina deposit,
From our examination of the record, we have little difficulty concluding that the Rehabilitation Court fully and fairly considered whether it had subject matter jurisdiction to settle the pre-rehabilitation claims of the parties before it to the North Carolina deposit. As we noted earlier, in addition to being a state court of general jurisdiction, the Rehabilitation Court also has special duties with respect to the rehabilitation of insurance companies. See n. 1, supra. In its November 1976 order approving the Rehabilitation Plan, the Rehabilitation Court made it clear that it was asserting both subject matter jurisdiction over all pre-rehabilitation claims against Underwriters, including those of the guaranty associations, and рersonal jurisdiction over the North Carolina Association and Underwriters. See App. 39, 53. Furthermore, as our recitation of the events leading up to the Rehabilitation Court‘s 1976 order indicates, that court was aware of potential claims that the North Carolina Association might assert against Underwriters. In order to ensure that all such claims were definitively resolved during the rehabilitation proceeding, the Rehabilitation Court notified the Association that it must either intervene in the rehabilitation proceeding to make objections to, or suggest changes in, the Proposed Plan of Rehabilitation, or specifically waive all such claims. See supra, at 698. Finally, the record indicates that, after the North Carolina Association intervened in the rehabilitation proceeding, it negotiated certain changes in Part X(C) of the Proposed Plan of Rehabilitation, concerning Underwriters’ liability to the guaranty associations for payments made to Underwriters’ policyowners.14 See supra, at 698-699.
Alternatively, respondents argue that the judgment of the Rehabilitation Court was not entitled to full faith and credit because that court lacked in personam jurisdiction over the North Carolina policyowners and the state officials. Although under different circumstances these questions might give us pause, it is clear that the Rehabilitation Court had personal jurisdiction over all parties necessary to its determination that the North Carolina Association could not satisfy pre-rehabilitation claims out of the North Carolina deposit.
The argument that the Rehabilitation Court did not have jurisdiction over the North Carolina officials is more complex.22 The North Carolina Court of Appeals found that the Rehabilitation Court did not have jurisdiction over the trust property or over the statutory trustees. Citing this Court‘s decision in Hanson v. Denckla, 357 U. S. 235 (1958), respondents argue that absent jurisdiction over the trust corpus or the trustee, the Rehabilitation Court was powerless to adjudicate rights in the North Carolina deposit. Therefore, respondents argue, the judgment of the Rehabilitatiоn Court is not entitled to full faith and credit, even as to parties admittedly subject to its jurisdiction.
Respondents’ reliance on Hanson v. Denckla, supra, is misplaced. In Hanson, this Court considered both a Florida judgment on direct review, and a Delaware judgment refusing to accord full faith and credit to the Florida judgment. Because the Florida judgment was before the Court on direct review, the Court was free to determine whether that court‘s exercise of jurisdiction over the trust or the trustee was appropriate. This Court determined that the Florida courts were without jurisdiction over either the trust or the trustee
In this case, however, the Rehabilitation Court‘s conclusion that it had jurisdiction to compromise the claims of the parties before it to the North Carolina deposit is not presented to this Court on direct review, and we express no opinion on the propriety of this conclusion. Although the Rehabilitation Court did not attempt to exercise jurisdiction over the North Carolina trustees, that court did purport to exercise jurisdiction over the trust corpus.23 The 1978 order specifies that the 1976 Rehabilitation Plan determined that the North Carolina deposit was an asset of Underwriters, subject to the jurisdiction of the Rehabilitation Court. This conclusion may well have been erroneous as a matter of North Carolina law. See State ex rel. Ingram v. Reserve Insurance Co., 303 N. C. 623, 629, 281 S. E. 2d 16, 20 (1981). Erroneous or not, however, this jurisdictional issue was fully and fairly litigated and finally determined by the Rehabilitation Court. Under Durfee v. Duke, 375 U. S. 106 (1963), and its progeny, once the Rehabilitation Court determined that the North Carolina Association could not liquidate the deposit to settle pre-rehabilitation claims, the North Carolina courts were required to honor that determination, even though the Rehabilitation Court did not assert personal juris-
C
Respondents argue that requiring North Carolina to give full faith and credit to the Rehabilitation Court‘s determination that the deposit was an asset of Underwriters, would negate that State‘s comprehensive statutory scheme to ensure the protection of North Carolina policyowners. Respondents contend that the courts and commentators are virtually unanimous in their support of a State‘s right to segregate assets of a foreign insurance company to be used for the sole benefit of that State‘s policyowners. See 2 G. Couch, Insurance Law § 22:96 (2d ed. 1959); 5 J. Joyce, Law of Insurance § 3595 (2d ed. 1918). Cf. Blake v. McClung, 172 U. S. 239, 257 (1898). It would not be equitable, respondents conclude, to require North Carolina to honor such a clearly erroneous result. While these arguments may have merit as a matter of insurance law, the only forums in which respondents may challenge the Rehabilitation Court‘s assertion of jurisdiction on these legal and equitable grounds are in Indiana.24 The North Carolinа Association‘s decision to assert these arguments in a separate proceeding in North Carolina has resulted in two state courts reaching mutually inconsistent judgments on the same issue. This is precisely the situation the Full Faith and Credit Clause was designed to prevent.
It is so ordered.
JUSTICE WHITE, with whom JUSTICES POWELL and STEVENS join, concurring in the judgment.
I agree with much of the discussion in the majority opinion on the scope and function of the principles of res judicata. I also agree with the majority that “it is clear that the Rehabilitation Court had personal jurisdiction over all parties necessary to its determination that the North Carolina Association could not satisfy pre-rehabilitation claims out of the North Carolina deposit.” Ante, at 711.
The only parties over which the Indiana court needed jurisdiction in order to prohibit the Association from moving against the North Carоlina deposit were the Association and Underwriters National Assurance Co. (UNAC). It had
This is true regardless of the jurisdiction the Indiana court may or may not have had over any other parties with potential interests in the controversial deposit. There are at least two such parties: the trustees and the North Carolina policyholders. In my view, the Indiana court did not have jurisdiction to determine the interests of either of these parties in the controverted fund. Neither of these parties appeared before the Indiana court, and I am quite unconvinced that the Indiana court had jurisdiction over the North Carolina deposit in the sense that it could adjudicate the validity of or scale down the lien on that fund held by nonappearing North Carolina policyholders and trustees. I agree with the majority, therefore, that it is proper for this Court to reserve at least the issue of whether the trustees “have an interest in the deposit, independent of that asserted by the North Carolina Association, which was not considered by the Rehabilitation Court.” Ante, at 716, n. 25. As for the policyholders, as I understand the opinion of the North Carolina court, under North Carolina law the Association was subrogated to the rights of the policyholders when it entered the service contract and undertook to make the policyholders whole. The policyholders thus no longer have an independent interest in the deposit.* See 48 N. C. App. 508, 518, 269 S. E. 2d 688, 694 (1980).
“In so far as [a court order] determines, or recognizes a prior determination of the existence and amount of the indebtedness of the defendant to the several creditors seeking to participate, it does not deal directly with any of the property. [This] function, which is spoken of as the liquidation of a claim, is strictly a proceeding in personam.... There is no inherent reason why the adjudication of the liability of the debtor in personam may not be had in some court other than that which has control of the res.” Id., at 224.
The reasoning of Riehle was specifically applied to judgments between States under the Full Faith and Credit Clause in Morris v. Jones, 329 U. S. 545, 549 (1947): “[T]he distribution of assets of a debtor among creditors ordinarily has a ‘twofold aspect.’ It deals ‘directly with the property’ when it fixes the time and manner of distribution.... But proof and allowance of claims are matters distinct from distribution.” Id., at 548-549. Thus, in my view, jurisdiction over the deposit is simply not relevant to the question of the res judicata effect of the Indiana court‘s judgment as to the Association.
*Since the policyholders and the Association appear to be the only possible beneficiaries of the trust, the trustees may have no beneficial interest to protect. This, however remains a matter of state law.