# Fabe v. Prompt Finance, Inc.

> Ohio Supreme Court · May 10, 1994 · 1994 Ohio 323

URL: https://www.frixlaw.com/law-library/cases/11148994

## Case

- **Court:** Ohio Supreme Court
- **Decided:** May 10, 1994
- **Citations:** 1994 Ohio 323
- **Precedential status:** Published
- **Opinion:** Opinion
- **Judges:** Douglas, J.
- **Cited by:** 0 later opinions in the Frix Law Library

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## Opinion text

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Fabe, Superintendent of Insurance, Appellant, v. Prompt
Finance, Inc., Appellee.
[Cite as Fabe v. Prompt Finance, Inc. (1994),
Ohio St.3d .]
Insurance -- Superintendent of Insurance has authority to
issue an order placing an insurer under supervision
-- R.C. 3903.09(C)(5), construed and applied -- Court
of common pleas has authority to issue a ruling which
is "necessary and proper" to enforce an order of the
Superintendent of Insurance -- R.C. 3903.09(I).
---
1. To protect the interests of policyholders, creditors,
claimants, and the public generally, the
Superintendent of Insurance has the authority to
issue an order placing an insurer under supervision.
An order of the Superintendent may require an insurer
to obtain approval from the Superintendent prior to
the transfer of any of the insurer's property. (R.C.
3903.09[C][5], construed and applied.)
2. Pursuant to R.C. 3903.09(I), a court of common pleas
has the authority to issue a ruling which is
"necessary and proper" to enforce an order of the
Superintendent of Insurance.
---
(No. 93-274 -- Submitted February 22, 1994 -- Decided
May 11, 1994.)
Appeal from the Court of Appeals for Franklin County,
No. 91AP-1347.
This case involves a complex scheme of numerous
interrelated domestic and international corporate
entities. However, the main focus of this appeal concerns
the interrelationship and involvement between only two of
the entities, Prompt Finance, Inc. ("Prompt"), appellee,
and the Oil & Gas Insurance Company ("OGICO"). Prompt is
a corporation engaged in the business of financing
insurance premiums.1 OGICO is an Ohio-licensed property
and casualty insurance company which primarily insures oil
and gas related activities.
Affiliates of OGICO are Petrosurance Casualty
Company, Millers National Insurance Company and the
Illinois Insurance Company (collectively referred to as
"OGICO").2 OGICO's parent company is Petrosurance
Incorporated, a subsidiary of Forum Holdings U.S.A., Inc.
Forum Holdings U.S.A., Inc. is a subsidiary of Forum Re
Group, Inc., a.k.a. The Group, Inc. Prior to December 29,
1989, Prompt's sole shareholder was Forum Re Finance
Corporation, which was owned by Forum Holdings U.S.A.,
Inc.
A common connection between Prompt and OGICO, their
affiliates and parent companies, is interlocking
directorates and/or officers. Some of the key persons
reflecting the integration of the various entities are
Clive Becker-Jones, Eric N. Wickfield and Mark G. Hardy.
Becker-Jones is president and a director of the OGICO
group companies, including OGICO's parent company,
Petrosurance Incorporated. He is also president and a
director of Forum Holdings U.S.A., Inc. and Forum Re
Group, Inc. Prior to December 1989, Becker-Jones assisted
Wickfield and was actively involved in the day-to-day
operations of Prompt. Wickfield is president and a
director of Prompt. He is also vice president of Forum
Holdings U.S.A., Inc. Hardy also wore many hats. He is a
director of OGICO and a director of Petrosurance
Incorporated. Hardy is also a director of Forum Holdings
U.S.A., Inc., and the chief executive officer and a
director of Forum Re Group, Inc. Further, Hardy is a
director of Prompt. In addition, many of the related
companies share a common vice president, treasurer,
secretary and assistant secretary. In any event, it is
apparent from the record that all related corporate
entities come under the ultimate control of Hardy.
In 1988, Prompt decided to obtain additional capital
to enhance its premium financing operation. After
exhausting loans from various affiliates, Prompt, through
Hardy and Wickfield, sought the services of Close Brothers
Group PLC ("Close Brothers"), a British merchant bank.
Close Brothers initially loaned Prompt $1 million. This
loan was secured by Hardy. Further, as a condition of
Prompt's securing an additional line of credit from a
corresponding bank, Close Brothers required that Prompt
obtain a guaranty arrangement.
On December 29, 1989, Forum Re Group, Inc., Forum Re
Finance Corporation and the OGICO group (collectively
known as the "guarantors") and Prompt entered into a
guaranty agreement. Pursuant to the terms of the
agreement, the guarantors jointly and severally guaranteed
"full and punctual payment when due" of any obligation
owed by them to Prompt. The agreement also provided for
the payment of Prompt's legal fees with respect to the
enforcement of any obligation owed by the guarantors to
Prompt. The guaranty agreement was secured by a letter of
credit issued by Society National Bank ("Society") in
favor of Prompt. The letter of credit authorized Prompt
to draw up to $1 million by draft for the failure of the
guarantors, individually or collectively, to abide by the
terms of the guaranty agreement. Hardy signed the
guaranty agreement on behalf of Forum Re Group, Inc. and
Forum Re Finance Corporation. Wickfield signed for Prompt
and Becker-Jones signed the guaranty agreement on behalf
of the companies consisting of the OGICO group.
To obtain the letter of credit, OGICO was required to
pay a $1 million debt owed by Petrosurance Incorporated,
pay a $10,000 fee, execute a promissory note and pledge
approximately $1 million in marketable securities as
collateral. The guaranty agreement was negotiated in
connection with the purchase of fifty percent of the stock
of Prompt by Close Brothers. The involvement of Close
Brothers resulted in a contribution of capital to Prompt,
a revolving credit facility in favor of Prompt, and the
payoff by Prompt of various of its outstanding loans.
Subsequent to Close Brothers' obtaining an interest
in Prompt, OGICO filed a financial statement with the Ohio
Department of Insurance ("ODI"). ODI reviewed OGICO's
financial status and determined that the company was in a
financially hazardous condition. Thus, on March 22, 1990,
the Superintendent of Insurance ("Superintendent"),
appellant, issued an order placing OGICO under
supervision. The order provided, among other things, that
OGICO was prohibited from transferring any of its property
without first obtaining written approval from the
Superintendent.
Following the March 22, 1990 order, representatives
of ODI and others met with Becker-Jones and Hardy. During
this meeting, Hardy refused to produce certain records
requested by ODI. ODI also informed Becker-Jones and
Hardy that OGICO needed additional amounts of cash to meet
certain statutory minimum surplus requirements.
While under supervision, OGICO directed Prompt to
pay, out of remittances Prompt was holding for OGICO,
aviation expenses apparently due from OGICO to yet another
affiliate, Phorum Re Investment Corporation ("Phorum
Re"). Phorum Re received three checks from Prompt
totalling $215,460.69. These payments were made on
OGICO's behalf pursuant to a "memorandum of understanding"
between Prompt and OGICO. The payments were made in
violation of the March 22, 1990 supervision order.
The Superintendent decided to take OGICO beyond
supervision and into rehabilitation. Accordingly, on May
4, 1990, the Superintendent filed a complaint for
rehabilitation in the Court of Common Pleas of Franklin
County. Four days later, various officers and/or
directors of Prompt discussed financial problems
associated with OGICO. Further, prior to this meeting,
Close Brothers, also a member of Prompt's board by virtue
of its fifty percent ownership interest in Prompt,
discussed these problems with Hardy. The managing
director of Close Brothers stated that his banking group
consulted with Hardy because he "* * * was also a director
of Prompt and was obviously intimately involved with the
general management of Forum and its insurance companies *
* *."
On May 16, 1990 a rehabilitation order was entered by
the trial court. Thereafter, Prompt's board of directors
authorized Wickfield to draw $1 million from Society. The
$1 million draft from Society was authorized by Prompt in
response to an unearned premium balance on cancelled
policies owed to Prompt from OGICO in the amount of
$45,000.
On May 17, 1990, the Superintendent, to protect
OGICO's assets, moved the trial court for a temporary
restraining order and preliminary injunction. The
Superintendent sought to enjoin any action by Prompt or
Society with respect to the letter of credit. The trial
court granted the Superintendent's motion. Thereafter, on
May 30, 1990, OGICO, through its rehabilitator, the
Superintendent, filed a complaint against Prompt and
Society for possession of assets. OGICO requested that
the trial court determine the validity and enforceability
of the guaranty agreement, the effect of the agreement on
the letter of credit, and direct an accounting of any
amounts owed by OGICO to Prompt. The trial court
continued the temporary restraining order, consolidated
the matters at issue and set the case for hearing.
Furthermore, the Superintendent, prior to the hearing,
amended his complaint. The Superintendent claimed that
Prompt owed money to OGICO for certain premiums financed
by Prompt. In response, Prompt filed an answer and
counterclaim. Prompt urged that OGICO failed to remit
unearned premiums on various cancelled policies.
On October 2, 1990, the trial court issued its
findings of fact and conclusions of law and, subsequently,
issued a judgment entry and an entry directing that an
accounting be made between the parties. The trial court
concluded that the guaranty agreement, as secured by the
letter of credit, was not supported by an exchange of
"fair equivalent value." The trial court determined that
OGICO received disproportionately less value than the
obligation it incurred since any default in any amount to
Prompt, either by OGICO or the other guarantors, would
result in Prompt receiving up to $1 million and OGICO's
reimbursing Society out of OGICO's collateralized
securities. Thus, concluded the court, the guaranty
agreement and the letter of credit should extend only to
the direct obligations of OGICO to Prompt rather than
obligations, if any, of the other guarantors. This being
the case, Prompt would only be entitled to draw the amount
of unearned premiums owing from OGICO to Prompt and not
the entire $1 million.
The trial court further held that the payment of
aviation expenses to Phorum Re by Prompt out of funds held
by Prompt for OGICO constituted "* * * attempts indirectly
to do that which was directly prohibited * * *" by the
supervision order. As such, the trial court found that
the payments made by Prompt to Phorum Re at the direction
of OGICO could not be deducted (set off) from the gross
amount of remittances Prompt had been holding for OGICO.
The court ordered an accounting between the parties, and
further held that Society could liquidate any securities
held as collateral for fees and expenses incurred by
Society with respect to the letter of credit.
The court of appeals reversed the judgment of the
trial court and remanded the cause. The court of appeals
concluded that the guaranty agreement was supported by
sufficient consideration and that the agreement and letter
of credit represented an exchange of "fair equivalent
value" between OGICO and Prompt. The court also held that
the trial court erred in charging Prompt with a violation
of the Superintendent's March 22, 1990 order without first
determining whether Prompt had knowledge of the terms of
the supervision order.
The cause is now before this court pursuant to the
allowance of a motion to certify the record.

Lee I. Fisher, Attorney General; Emens, Kegler,
Brown, Hill & Ritter Co., William J. Brown, John P. Brody,
Richard W. Schuermann and Paul L. Hokemeyer, for appellant.
Jones, Day, Reavis & Pogue, Fordhan E. Huffman and
Sara M. Allswede, for appellee.

Douglas, J. This appeal presents two questions
for our consideration. The first issue concerns the
authority of the Superintendent to prohibit transfers of
property where the transfer would be in violation of a
supervision order, and the authority of a court of common
pleas to issue a ruling necessary to enforce an order of
the Superintendent. The second question is whether the
trial court erred in concluding that the guaranty
agreement, as secured by the letter of credit, was
supported by adequate consideration.
I
R.C. Chapter 3903 is referred to as "'the insurers
supervision, rehabilitation, and liquidation act.'" R.C.
3903.02(A). If the Superintendent has reasonable cause to
believe that the continuance of an insurer's business
could be hazardous "to the public or to the holders of its
policies or certificates of insurance," the Superintendent
may order that the insurer be placed under supervision.
R.C. 3903.09(B) and (C). Further, the Superintendent may,
under certain circumstances, file a complaint in the court
of common pleas for an order authorizing the
rehabilitation of an insurance company. R.C. 3903.12.
See, also, R.C. 3903.09(D). However, if the
Superintendent determines that rehabilitation of an
insurer "would substantially increase the risk of loss to
creditors, policyholders, or the public, or would be
futile," the Superintendent may file a motion with the
trial court for an order of liquidation. R.C. 3903.16(A).3
The General Assembly enacted R.C. Chapter 3903 for
the specific purpose of protecting "the interests of
insureds, claimants, creditors, and the public generally,
with minimum interference with the normal prerogatives of
the owners and managers of insurers * * *." R.C.
3903.02(D). See, also, Anderson v. Ohio Dept. of Ins.
(1991), 58 Ohio St.3d 215, 569 N.E.2d 1042, paragraph two
of the syllabus, wherein a majority of this court held, in
part, that R.C. Chapter 3903 was enacted for the benefit
of the "general citizenry." Moreover, to ensure that the
purpose of the act is effectuated, R.C. 3903.02(C) sets
forth that the provisions of R.C. Chapter 3903 are to be
liberally construed.
The Superintendent contends that explicit statutory
authority exists to prohibit the transfer of payments
($215,460.69) from Prompt to Phorum Re. The
Superintendent asserts that the transfers were executed in
violation of the March 22, 1990 supervision order and,
consequently, the trial court properly concluded that
Prompt could not offset the payments against any
indebtedness of Prompt due OGICO. In support of his
position, appellant relies on R.C. 3903.05, 3903.09(C) and
(I).
The General Assembly has conferred upon the
Superintendent and a trial court broad discretionary and
equitable powers relating to the supervision,
rehabilitation and liquidation of insurance companies.
R.C. 3903.09(C)(5) provides that an insurer who has been
placed under supervision may be prohibited from
transferring any property absent prior approval of the
Superintendent. Further, the Superintendent may file a
complaint or move the trial court to issue a temporary
restraining order, preliminary or permanent injunction or
"such other orders as the court considers necessary and
proper to enforce a supervision order." (Emphasis
added.) R.C. 3903.05(A). R.C. 3903.05 also gives a court
of general jurisdiction a broad spectrum of powers. R.C.
3903.05(A) provides that a trial court, upon motion of a
receiver, conservator, rehabilitator or liquidator, may
issue an order which the court considers "necessary and
proper" to prevent, inter alia, the transaction of further
business; the transfer of property; the interference with
the receiver, conservator, rehabilitator, liquidator or
any proceeding under R.C. Chapter 3903; the obtaining of
preferences; and "[a]ny other threatened or contemplated
action that might lessen the value of the insurer's assets
or prejudice the rights of policyholders, creditors, or
shareholders * * *." See R.C. 3903.05(A)(1), (2), (3),
(7) and (11).
In the case at bar, payments totalling $215,460.69
were made by Prompt to Phorum Re at the direction of
OGICO. The payments were made after OGICO had been placed
under supervision. OGICO, Prompt and Phorum Re are
closely connected companies. The record indicates that
Prompt owed money to OGICO for premiums Prompt had
financed, that OGICO owed money to Prompt for unearned
premiums on cancelled policies, and that OGICO was
indebted to Phorum Re for aviation expenses. Further, the
payments to Phorum Re by Prompt were made in accordance
with a "memorandum of understanding" between OGICO and
Prompt. The memorandum provided "* * * that any and all
transfers that PROMPT makes to Phorum [Re] on OGICO's
behalf releases PROMPT from that same liability to OGICO
and that PROMPT's payment to Phorum [Re] shall be
construed to be the same as a payment to OGICO from
PROMPT."
The trial court held, and we agree, that the transfer
of payments made by Prompt to Phorum Re on behalf of OGICO
violated the Superintendent's March 22, 1990 order. We
further agree with the trial court that the transfer of
payments were "attempts indirectly to do that which was
directly prohibited" by the supervision order and,
therefore, Prompt may not offset monies which it may owe
OGICO.
The court of appeals found that Becker-Jones had
knowledge OGICO was under supervision and that he promptly
informed Wickfield of OGICO's status. The appellate court
also found that Prompt's vice president was aware OGICO
was under supervision. The court of appeals agreed that
the payments by Prompt to Phorum Re totalling $215,460.69
violated the supervision order. However, the court of
appeals concluded that the trial court erred in holding
that payments to Phorum Re by Prompt on OGICO's behalf
were attempts to circumvent the supervision order. The
court of appeals held that before such a conclusion can be
reached, the trial court must determine whether Prompt had
knowledge of the contents of the March 22, 1990
supervision order, which precluded any transfers of
property absent prior approval by the Superintendent.
Prompt agrees with the court of appeals' conclusion and
urges that the Superintendent's exclusive remedy is set
forth in R.C. 3903.09(J). We disagree.
R.C. 3903.09(J) provides that any person, including
those described in R.C. 3903.06(A), who knowingly violates
an order of the Superintendent thereby resulting in a
decrease in the net worth of an insurer or causes the
insurer to suffer a loss may be liable for such decrease
or loss. This section provides the Superintendent with a
civil cause of action for damages against those who
knowingly violate an order of the Superintendent.
However, this section is clearly not the only remedy
available to the Superintendent. To hold otherwise would
be to ignore additional rights given to the Superintendent
by law. Most notably, R.C. 3903.09(I) provides that the
Superintendent may move the trial court for such order
that "* * * the court considers necessary and proper to
enforce a supervision order." (Emphasis added.)
Given the inexorably intertwined relationship between
Prompt and OGICO and the directors and officers involved,
even assuming that R.C. 3903.09(J) provides the exclusive
remedy available to the Superintendent, it cannot be
seriously argued that Prompt did not have sufficient
knowledge so as to comply with R.C. 3903.09(J).
Wickfield, Prompt's president, was aware that OGICO was
under supervision. Prompt's vice president was also aware
of OGICO's status. Becker-Jones also had knowledge of the
order. Further, it is apparent that Hardy, a director of
Prompt and OGICO, was also intimately involved in the
management of OGICO and other related affiliates.
Moreover, at oral argument, counsel for Prompt conceded
that Hardy was aware of the March 22, 1990 order.
The statutory scheme of R.C. Chapter 3903 is intended
to protect the rights of insureds, policyholders,
creditors, and the public generally. The Act was not
intended to protect an insider affiliate such as Prompt.
Accordingly, we hold that to protect the interests of
policyholders, creditors, claimants, and the public
generally, the Superintendent of Insurance has the
authority to issue an order placing an insurer under
supervision. An order of the Superintendent may require
an insurer to obtain approval from the Superintendent
prior to the transfer of any of the insurer's property.
Further, pursuant to R.C. 3903.09(I), a court of common
pleas has the authority to issue a ruling which is
"necessary and proper" to enforce an order of the
Superintendent of Insurance.
II
The Superintendent contends, and the trial court
held, that the guaranty agreement, as secured by the
letter of credit, was not supported by fair
consideration. The trial court concluded that the
agreement and letter of credit, when viewed under the
totality of the circumstances, did not constitute an
exchange of fair equivalent value between OGICO and
Prompt. An exchange of fair equivalent value was not
present, reasoned the trial court, because OGICO received
disproportionately less value than the obligation it
incurred.
R.C. 3903.26(A) provides, in part, that every
transfer or obligation incurred by an insurer within one
year of the filing of a successful complaint for
rehabilitation or liquidation is fraudulent as to then
existing or future creditors if made without fair
consideration. R.C. 3903.01(H) provides that:
"'Fair consideration' is given for property or
obligation when either of the following apply:
"(1) When in exchange for such property or
obligation, as a fair equivalent therefor, and in good
faith, property is conveyed, services are rendered, an
obligation is incurred, or an antecedent debt is satisfied;
"(2) When such property or obligation is received in
good faith to secure a present advance or antecedent debt
in an amount not disproportionately small as compared to
the value of the property or obligation obtained."
(Emphasis added.)
The court of appeals held that the trial court did
not apply R.C. 3903.26(A) and 3903.01(H) correctly when it
determined whether fair equivalent value was exchanged
between OGICO and Prompt. In reaching this conclusion,
the court of appeals stated that "[f]air equivalent value
does not necessarily mean equal value, and the court must
look at the total circumstances involved in the
transaction. What is exchanged does not have to be equal,
but can be substantially equivalent as long as what is
exchanged is not disproportionately small." (Emphasis
sic.)
In Myers v. Garson (1993), 66 Ohio St.3d 610, 614,
614 N.E.2d 742, 745, we recently reaffirmed that: "[W]here
the decision in a case turns upon credibility of
testimony, and where there exists competent and credible
evidence supporting the findings and conclusions of the
trial court, deference to such findings and conclusions
must be given by the reviewing court." Having reviewed
the entire record in the instant case, we find that there
exists competent and credible evidence supporting the
findings of fact and conclusions of law of the trial court.
We agree with the trial court that the major
benefactor of the guaranty agreement was Prompt. The
guaranty agreement and letter of credit were a condition
precedent to Close Brothers' obtaining a fifty percent
ownership interest in Prompt. As a result of Close
Brothers' participation, Prompt was able to obtain a
beneficial infusion of capital, a revolving credit
facility, and the ability to pay off certain of its
outstanding loans. In contrast, OGICO was required to pay
a $1 million debt owed by its parent company, pay a
$10,000 fee and pledge approximately $1 million in
assets. The trial court noted that in exchange for
signing the guaranty agreement, OGICO simply received more
accessible premium financing. It appears that OGICO
already had existing opportunities available to it from
other companies for financing insurance premiums. Hence,
it is apparent that the court of appeals impermissibly
substituted its judgment for that of the trial court.
III
For the foregoing reasons, we reverse the judgment of
the court of appeals and reinstate the judgment of the
trial court in all respects.
Judgment reversed.
Moyer, C.J., A.W. Sweeney, Wright, Resnick, F.E.
Sweeney and Pfeifer, JJ., concur.
FOOTNOTES:
1 The concept of premium financing involves the
financing of an insurance policy. There is a contractual
or established relationship between an insurance company
and a financing entity. In general terms, the financing
company advances the amount of premium owed by the insured
to the insurer. The insured, which has given the
financing company a substantial down payment, then pays
the financing company the remainder of the premium in
installments. However, if the insured's policy is
cancelled, the insurer is required to remit any unearned
premium to the financing company which then reimburses the
insured for any amount that may be owed it.
2 The OGICO group companies had been for a certain
period of time operating on a "pooled" arrangement whereby
all day-to-day business operations were conducted out of
OGICO's main office. Further, OGICO was considered the
controlling company for the pooled arrangement. Moreover,
it appears that employees responsible for the management
of the OGICO group were located at the same address as
that of Prompt.
3 On August 31, 1990, OGICO was found to be insolvent
and placed in liquidation.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/11148994. Public record. Not legal advice.