Commonwealth ex rel. Kelly v. Commonwealth Mutual Insurance ( 1973 )

Opinion by

Mb. Justice Robebts,

On February 28, 1964, tlie Commonwealth Mutual Insurance Company [hereinafter OMIC] wag digsolved by order of the Court of Common Pleag of Dauphin County, sitting ag the Commonwealth Court. Pursuant to the Act of May 17, 1921, P. L. 789, art. Y, §506, ag amended, 40 P.S. §206 (1971), the Ingurance Commisgioner of Pennsylvania wag appointed gtatutory liquidator.

Over six yearg later, on May 1, 1970, the Commissioner filed a petition for an aggeggment order,¹ which sought permiggion for a total aggeggment of $19,465,-504.62 to be divided among the individual policyholders.² Appellantg, OMIO policyholders, interposed objections on their own behalf and on behalf of all OMIO policyholders residing in Philadelphia. A hearing wag held on June 11, 1970 and, subsequently, an order was issued by the court granting appellee’s petition and dismissing appellants’ objections. This appeal followed.

The principal issue presented is whether the Insurance Commissioner, after approving an insurance policy containing a one year limitation on the imposition of contingent liability, can now, as statutory liquidator, completely disregard that specific policy provision and levy an assessment six years after the expiration of the policy. The relevant provision of the insurance policy provides: “Limit op Liability : The contingent liability of the insured shall not exceed an additional amount equal to the premium written in this policy. Any such additional premium, as so limited, shall be levied within one year from the date of expiration or cancellation of this policy, and not later.” (Emphasis added.)

We conclude that the statutory liquidator is bound by the explicit language of the contract and may not here impose an assessment upon the policyholders. To hold otherwise would extravagantly expand a one year contractual limitation to mean six years.

It is beyond doubt that when additional funds are needed to pay losses and expenses of a dissolved mutual insurance company, the right to assess the policyholders rests on the terms of the contract of insurance. See Taggart, Ins. Com. v. Graham, 108 Pa. Superior Ct. 320, 165 Atl. 68 (1933), aff’d, sub nom. Taggart, Ins. Com. v. De Fillippo, 315 Pa. 438, 173 Atl. 423 (1934). Here, the right to assess, by the specific terms of the policy, is limited to one year after the expiration of the policy.

Appellee, however, relying on Commonwealth ex rel. Schnader v. Keystone Ind. Exchange, 335 Pa. 333, 6 A. 2d 821 (1939), aff’d on rehearing, 338 Pa. 405, 11 A. 2d 887 (1940), contends that he is not bound by the contractual one year limitation in the policy. Keystone is readily distinguishable. There, the “subscriber’s agent, the Indemnity Company, issued policies which not only did not contain the contingent liability provision required by the statute, but even provided no assessment should be made.” Id. at 336, 6 A. 2d at 822.

This Court there held that an insurance policy which contained no provision at all for contingent liability was invalid because it did not comport with the legislative requirement that policies contain such a clause. Act of May 17,1921, P. L. 682, art. X, §1004, as amended, 40 P.S. §964 (1971). Here, the policies specifically included the provision mandated by the statute. Nothing in Keystone or the statutory scheme prohibits the inclusion of a one .year restriction on the levying of contingent liability.

The one year limitation, a valid and enforceable provision as between the insurance carrier and the policyholders, retains its full contractual validity even upon the appointment of the statutory liquidator. In Taggart, supra, the Court said: “There is no express additional authority given to the insurance commissioner, substituted simply as a liquidator for a receiver appointed by the court. No sound reason suggests itself, and none has been advanced, why his authority should be more extensive than a receiver formerly had. His duties are the same and Ms power should be subject to the same limitations.” Id. at 327-28, 165 Atl. at 71. Thus, the Commissioner, as statutory liquidator, having the same authority as a receiver, “stand [s] in the shoes of the owner and take[s] only his interest in the property. . . .” Commonwealth Trust Company of Pittsburgh v. Harkins, 312 Pa. 402, 410, 167 Atl. 278, 281 (1933). His contract rights are, indeed, not superior to nor “more extensive than” those of the carrier whose affairs he is liquidating.

The trial court’s determination is even less tenable in light of the fact that the Insurance Commissioner, who has authority to disapprove policies which contain provisions “inconsistent or in conflict with any law of the Commonwealth”, Act of May 17, 1921, P. L. 682, art. VIII, §804 (1971), approved the very policies which he now seeks to ignore. Those policies contain a mandatory one year limitation. That specific contractual provision is sufficient to preclude the result which the trial court reached. So too, the Commissioner is estopped from denying the applicability of the one year limitation. In Walsonavich v. United States, 335 F. 2d 96 (3d Cir. 1964), the court stated: “The general rule regarding estoppel against the Government has been that the United States is not estopped by the acts of its officers and agents who without authority enter into agreements to do what the law does not sanction or permit; that those dealing with an agent of the Government must be held to have notice of limitations of his authority. . . . But as we said in Ritter (at p. 267) : ‘The acts or omissions of the officers of the government, if they be authorized to bind the United States in a particular transaction, will work estoppel against the government, if the officers have acted within the scope of their authority’. And as we have above noted the Commissioner had the authority in this instance to enter into the agreement. It seems to us it necessarily follows that the Government should not be permitted either to accord the agreement only a limited effect or to abandon it entirely.” Id. at 101 (citations omitted). Here, the Commissioner clearly acted within the scope of his statutory authority in approving the policies containing the one year restriction. Act of May 17, 1921, P. L. 682, art VIII, §804 (1971). Therefore, as statutory liquidator, he is bound by that contractual limitation and may not be permitted to deny its present effectiveness.

Order reversed.

1 The Insurance Commissioner’s authority to assess members of a mutual insurance company is derived from the Act of May 17, 1921, 1>. L. 789, art. V, §509.1, as amended, 40 P.S. §209.1 (1971).

2 The assessment was to be divided among the individual policy-holders by multiplying, in the case of each policyholder, the premium written in the policy by the total of the monthly assessment factors for the period when the policy was in force. Each policyholder was to be assessed on the basis of those losses which occurred when his policy was in effect. No policyholder was to be assessed an amount in excess of one hundred percent of the premiums he had previously paid.