Appendix — Underwriters National Assurance Co. v. North Carolina Life & Accident & Health Insurance Guaranty Ass'n
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No. 80-1496
IN THE JUL 9 1961
Soopreme Court of the Writed Sintes
OCTOBER TERM, 1980
UNDERWRITERS NATIONAL ASSURANCE COMPANY,
Petitioner,
vs.
NORTH CAROLINA LIFE AND ACCIDENT AND HEALTH
INSURANCE GUARANTY ASSOCIATION, JOHN RANDOLPH
INGRAM, COMMISSIONER OF INSURANCE OF THE STATE OF
NORTH CAROLINA, AND HARLAN E. BOYLES, TREASURER
OF THE STATE OF NORTH CAROLINA,
Respondents.
ON WRIT OF CERTIORARI TO THE
NORTH CAROLINA COURT OF APPEALS
JOINT APPENDIX
Theodore R. Boehm William S. Patterson
(Counsel of Record) (Counsel of Record)
Charles T. Richardson Charles D. Case
BAKER & DANIELS ALLEN, STEED AND
810 Fletcher Trust Building ALLEN, P.A.
Indianapolis, Indiana 46204 Post Office Box 2058
(317) 636-4535 Raleigh, North Carolina 27602
Counsel for Petitioner (919) 828-4481
Rufus L. Edmisten
Attorney General
Richard L. Griffin
Assistant Attorney General
North Carolina Department
of Justice
Post Office 629 Box
Raleigh, North Carolina 27602
(919) 733-6012
Counsel for Respondents
PETITION FOR CERTIORARI FILED MARCH 3, 1981.
CERTIORARI GRANTED MAY 18, 1981.
Central Publishing Company. Inc.. Indianapolis, IN 44206
TABLE OF CONTENTS
J.A.
ITEM R. Page Page
1. Docket Entries In The North Carolina
EN cccccudeesench screens 1
2. Letter dated June 13, 1973, from
George E. King to Ralph K. Lindop,
Exhibit A to the Affidavit of 23, Ex.
PC Ws SUED cnccceccsaevevecs Binder1 7
3. Letter dated June 18, 1973, from
Ralph K. Lindop to George E. King,
Exhibit B to the Affidavit of 23, Ex.
SE We MIE dacvescovboscuses Binder2 9
4. Letter dated June 19, 1973, from
Bruce B. Bowers to George E. King,
Exhibit C to the Affidavit of 23, Ex.
SC Oy RE crak ewe ces naan Binder 4 11
5. Order of Rehabilitation by the Indiana
Rehabilitation Court, issued August
5, 1974, Exhibit 1 to the Affidavit 30, Ex.
of Charles T. Richardson ........ Binder 57 13
6. Notice to Policyholders by the Indiana
Rehabilitation Court, mailed in
December, 1975, Exhibit 4 to the 30, Ex.
Affidavit of Charles T. Richardson. Binder 109 15
7. Notice of Hearing before the Indiana
Rehabilitation Court, mailed in
August, 1976, Exhibit 8 to the 30, Ex.
Affidavit of Charles T. Richardson. Binder 171 21
8. Information to the Court and Petition
for Approval of Mailing to Certain
Policyholders of UNAC and Approval
TABLE OF CONTENTS
J.A.
ITEM R. Page Page
of Concept of Service Contract
Between Guaranty Associations and
UNAC, filed by NCGA in the Indiana
Rehabilitation Court on October 12,
1976, Exhibit 9 to the Affidavit 30, Ex.
of Charles T. Richardson ........ Binder 189 27
9. Final Judgment, Memorandum and
Plan of Rehabilitation by the
Indiana Rehabilitation Court, issued
November 22, 1976, Exhibit 10 tothe 30, Ex.
Affidavit of Charles T. Richardson. Binder 200 37
10. Notices to Interested Parties in the
Proceeding before the Indiana
Rehabilitation Court, mailed in
December, 1976, and January,
1977, Exhibit 11 to the Affidavit 30, Ex.
of Charles T. Richardson ........ Binder 250 83
11. Petition for Instructions Concerning A
Service Contract Between Under-
writers National Assurance Com-
pany and Each of the State Insurance
Guaranty Associations, filed by
NCGA, UNAC and others in the
Indiana Rehabilitation Court on
June 8, 1977, Exhibit 13 to the 30, Ex.
Affidavit of Charles T. Richardson. Binder 272 89
12. Complaint, filed by NCGA in the
North Carolina Trial Court on
January 12, 1978... ccccccccces 3 99
13. Answer and Counterclaim, filed by
UNAC in the North Carolina Trial
Court on March 14, 1978 ........ 13 105
TABLE OF CONTENTS
J.A.
ITEM R. Page Page
14. Petition for Instructions, filed by
UNAC in the Indiana Rehabilitation
Court on July 13, 1978, Exhibit I
to the Affidavit of Bobby W. 23, Ex.
CON. icxaceusectaaneseeeeeee Binder 36 111
7 15. Notice and Joint Motion for Summary
» Judgment, filed by All Respondents
herein in the North Carolina Trial
. Court on January 30, 1979....... 20 123
16. Motion for Summary Judgment and
Notice of Hearing, filed by UNAC
in the North Carolina Triai Court
on Maren B68, T0700 s0vcssccncnens 29 127
[The following items appear only in
the Appendices to UNAC’s Petition
for a Writ of Certiorari.]
17. Order of the Indiana Rehabilitation Pet. App.
Court, issued November 22, 1978 31A-41A
18. Order of the North Carolina Trial Pet. App.
Court, issued April 11, 1979 ..... 19A-28A
19. Opinion of the North Carolina Court
of Appeals, issued September 2, Pet. App.
- BOS os v000b06dineeee tance 5A-16A
20. Judgment of the Supreme Court of
North Carolina, issued December Pet. App.
’ SPP ee errr 1A-2A
1.
Docket Entries In
The North Carolina Courts Below
The following are the docket entries as they appear in the
records of the North Carolina courts below.
NORTH CAROLINA IN THE GENERAL COURT OF
JUSTICE
WAKE COUNTY SUPERIOR COURT DIVISION
NORTH CAROLINA LIFE AND
ACCIDENT AND HEALTH
INSURANCE GUARANTY
ASSOCIATION,
Plaintiff,
v. No. 78CVS 174
UNDERWRITERS NATIONAL
ASSURANCE COMPANY,
JOHN RANDOLPH !NGRAM,
COMMISSIONER 0: INSURANCE
OF THE STATE OF NORTH CAROLINA,
AND HARLAN E. BOoYLEs, TREASURER
OF THE STATE OF NORTH CAROLINA,
Nem me me re ere ee re rere eee Se” Sree” See” ite” eee” ee” ee”
Defendants.
{The original docket entries are in two columns entitled
“Document Filed by PLAINTIFF” and “Document Filed
by DEFENDANT.” Entries in the original docket appear
in chronological order within each column, rather than in
the integrated chronological order displayed below.]
1
DATE
1/12/78
2/13/78
2/13/78
2/13/78
3/14/78
3/14/78
4/14/78
1/30/79
1/30/79
1/31/79
3/12/79
3/12/79
3/14/79
3/20/79
4/2/79
4/11/79
ITEM
Complaint
Order of Service issued sheriff
Wake served on Underwriters
Nat. Assurance Co. served
2-13-78
Order extending time to answer
Complaint to & including 3-14-78
Answer, Counterclaim & cross
claim w/ cert. of Serv. against
Underwriters Nat’! Assurance Co.
Answer of National Assurance Co.
w/ cert. of serv.
Answer to Cross-Claim w/ cert.
of Serv.
Reply w/ cert. of Serv.
Notice and Joint Motion for
summary judgment w/ cert. of
serv.
Affidavit of Bobby W. Gray
Notice w/ cert. of serv.
Motion for Summary Judgment
and Notice of hearing w/ cert.
of serv.
Affidavit of Charles T. Richardson
w/ exhibits (see vault)
Affidavit of David P. Phipps w/
cert. of serv.
Courtroom Procedure
Affidavit of William S. Patterson
Order and dismissal of Under-
writers counterclaim [The order
of the North Carolina trial court
COLUMN
Plaintiff
Plaintiff
Plaintiff
Defendant
Defendant
Defendant
Plaintiff
Plaintiff
Plaintiff
Plaintiff
Defendant
Defendant
Defendant
Plaintiff
Plaintiff
Plaintiff
4/20/79
4/20/79
4/23/79
5/14/79
7/5/79
7/13/79
7/30/79
8/2/79
9/24/80
10/6/80
10/20/80
12/8/80
5/28/81
3
issued on April 11, 1979 appears
at Pet. App. 19A-28A.]
Notice of Appeal to Ct of Appeals Defendant
by Deft Underwriters (UNAC)
Nat'l w/ cert. of service
Application for Enforcement of | Defendant
Judgment pending appeal
Appeal Entries Defendant
Stay of Enforcement of Judgment Plaintiff
2nd proposed record on appeal Defendant
Consent order extending time to Defendant
settle record on appeal
Stipulation Defendant
Record on appeal! (Exhibits to Plaintiff
record on appeal in vault)
Judgment & Opinion from the Defendant
NC Court of Appeals; no error
[The opinion of the North Carolina
Court of Appeals issued on Septem-
ber 2, 1980, appears at Pet. App.
5A-16A.]
Cert. of Satisfaction of Costs Defendant
in Court of Appeals
Notice that case has been certi- Defendant
fied to the Supreme Court
Notice from Ct of Appeals; Defendant
Supreme Court denied Petition
for Review [The judgment of the
Supreme Court of North Carolina
issued on December 4, 1980,
appears at Pet. App. 1A-2A.]
Notice from Ct of Appeals; U.S. Defendant
Supreme Court allow Certiorari
4
NORTH CAROLINA COURT OF APPEALS
NORTH CAROLINA LIFE AND
ACCIDENT AND HEALTH
INSURANCE GUARANTY
ASSOCIATION,
v. No. 7910SC 766
UNDERWRITERS NATIONAL
ASSURANCE COMPANY,
JOHN RANDOLPH INGRAM,
COMMISSIONER OF INSURANCE
OF THE STATE OF NORTH CAROLINA,
AND HARLAN E. BOYLES, TREASURER
OF THE STATE OF NORTH CAROLINA.
eee
[The following entries are reproduced verbatim as they
appear in the records of the court.]
Filed 8-22-79
Docketed 8-22-79
Argued 2-29-80
Opinion 9/2/80
[The opinion of the North Carolina Court of Appeals
issued on September 2, 1980, appears at Pet. App. 5A-
16A.]
Certification 9/22/80
Satisfaction 10-2-80
Appealed (Certiorari) (D.R.) 10-10-80
Certified to Supreme Court 10-16-80
Judgment Appeal dismissed
& D.R. denied 12-2-80
[The judgment of the Supreme Court of North Carolina
issued on December 4, 1980, appears at Pet. App. 1A-
2A.]
Allowed by U.S. Supreme Court 5-18-81
5
Docket Fee 8-22-79
Record 8-22-79
Appellant’s Brief 10-22-79
Appellee’s Brief 12-3-79
Addendum (R) (B)12-3-79
Other Briefs DRB12-17-79
Exhibits 8-22-79
*.- * *
Motion Of Date
Appellant 8-22-79 Motion
Appellant 9-20-79 Motion
Appellee 11-6-79 Motion
Appellee 11-8-79 Motion
Ruling Date
Allowed 8-23-79
Allowed 11-7-79
Allowed 11-8-79
Appellant 2-14-80 Motion Richardson Allowed 2-15-80
Appellant 2-14-80 Motion Boehm
* + *
TENTH DISTRICT
Allowed 2-19-80
SUPREME COURT OF NORTH CAROLINA
Fall Term 1980
NORTH CAROLINA LIFE AND
ACCIDENT AND HEALTH
INSURANCE GUARANTY
ASSOCIATION,
Vv.
UNDERWRITERS NATIONAL
ASSURANCE COMPANY,
JOHN RANDOLPH INGRAM,
COMMISSIONER OF INSURANCE
OF THE STATE OF NORTH CAROLINA,
AND HARLAN E. BOoYLEs, TREASURER
OF THE STATE OF NORTH CAROLINA.
i
No. 60PC
6
[The following entries are reproduced verbatim as they
appear in the records of the court.]
Docketed 6 October 1980
Notice of Appeal
10-15-80—Motion to Dismiss
12-2-80—Appeal Dismissed
Pet. for Discretionary Review
Under GS7A-31 10-15-80—Answer
10-15-80—Answer (AD)
12-2-80—Denied
[The judgment of the Supreme Court of North Carolina
issued on December 4, 1980, appears at Pet. App. 1A-
2A.)
7
{Exhibit In The North Carolina Court
of Justice, Superior Court Division,
Wake County]
DEPARTMENT OF INSURANCE
State of North Carolina
P. O. Box 20307
RALEIGH, N. C. 27611
June 13, 1973
JOHN RANDOLPH INGRAM (919) 829-7343
COMMISSIONER OF INSURANCE
Mr. Ralph K. Lindop, President &
Chairman of the Board
Underwriters National Assurance Company
3637 North Meridian Street
Indianapolis, Indiana 46208
Re: Review of Operations and Financial Condition of
Underwriters National Assurance Company
Dear Mr. Lindop:
This will confirm my telephone conversation with you of
June 13, 1973 relative to the operations and financial
condition of Underwriters National Assurance Company
for the calendar year ending December 31, 1972.
As indicated to you by telephone, Commissioner Ingram
has requested that you deposit for the sole benefit of North
Carolina policyholders $100,000 in eligible securities in
order that this Department may be in a position to issue the
Company’s license for the year July 1, 1973 through June
30, 1974.
As further indicated to you by telephone, please furnish
this Department a letter setting forth corrective measures
8
which the Board of Directors and Officers of your Company
are now taking to reduce the continuing drain on suprlus
during 1973.
If you have not already done so, it is requested that the
Company advise this Department as promptly as possible
of its compliance with the above request. The Company
should contact this Office within the next ten (10) days
relative to eligible securities and the appropriate
registration thereof prior to the submission of any
securities.
Sincerely yours,
JOHN RANDOLPH INGRAM
Commissioner of Insurance
/s/ George E. King
Deputy Commissioner & Chief
Examiner
Company Operations Division
9
3.
{Exhibit In The North Carolina Court
of Justice, Superior Court Division,
Wake County]
underwriters national assurance company
CORPORATE OFFICES: 3637 N. MERIDIAN ST., INDIANAPOLIS, INDIANA 46208
June 18, 1973
Mr. George E. King
Deputy Commissioner & Chief Examiner
Company Operations Division
North Carolina Department of Insurance
P. O. Box 26387
Raleigh, North Carolina 27611
Dear Mr. King:
Pursuant to your letter to me of June 1973 and our previous
telephone conversation, I have asked our Treasurer, Mr.
Bruce Bowers, to contact Mr. Bryant Tyndall of your
Department regarding arrangements for transferring
$100,000 deposit to your Department for the sole benefit of
North Carolina policyholders. You, of course, indicated
that this was a requirement for our license to be renewed
for July 1, 1973.
We are well aware that there has been some drain of our
surplus over the past 12 years of our company’s existence.
As you know, this is a natural phenomenon of any
conventional life and health insurance company. I believe
we have a fine company, and I am proud of our
accomplishments in light of the limited surplus which we
have used in attaining the position of being the second
largest producer of non-cancellable accident and sickness
loss-of-time insurance in the country. The information
available which leads me to make such a statement is not
complete, but I still believe the statement is accurate.
10
You will be happy to know that we have taken considerable
steps to improve our statutory surplus situation. Primarily,
we have committed ourselves to the opening of only one new
agency in 1973. New agencies in 1974 will be similarly
limited. (In the three years prior to 1973, we had opened a
total of 25 new agencies.) Also we are engaged in an
austerity program in which we are determined to “hold the
line” on Home Office expenses. The first quarter’s figures
for this year gave us the first indication of our progress on
this program, inasmuch as general expenses in the first
quarter of 1973 were only 4% higher than general expenses
in the first quarter of 1972, while income was up 60%. This
was accomplished in light of the fact that salaries, one of
our largest expense items, were up 54% to 6% and in spite of
the fact that we had installed new computer equipment in
the latter part of 1972. We are confident that as a result of
these programs there will be an improvement in our
surplus position which now stands at over $3,000,000.
Sincerely,
/s/_ Ralph K. Lindop
Chairman of the Board
President
RKL:kjw
11
4.
{Exhibit In The North Carolina Court of Justice,
Superior Court Division, Wake County]
underwriters national assurance company
CORPORATE OFFICES: 3637 N. MERIDIAN ST., INDIANAPOLIS, INDIANA 46208
June 19, 1973
Mr. George E. King
Deputy Commissioner & Chief Examiner
Company Operations Division
North Carolina Department of Insurance
P. O. Box 26387
Raleigh, North Carolina 27611
Re: Deposit with North Carolina
Insurance Department
Dear Mr. King:
In accordance with your request concerning renewal of
license for Underwriters National Assurance Company
and in accordance with my phone coversation with Mr. Bob
Gray on June 19, UNAC has instructed its Custodial Bank
to re-register and transfer the securities shown on the
attached letter to the North Carolina Department of
Insurance.
We understand that interest payments will be sent to the
Treasurer of the State of North Carolina, with the checks
made payable to the Treasurer of North Carolina and
Underwriters National Assurance Company. We further
understand that the Treasurer of the State of North
Carolina will endorse the interest checks and remit them on
a timely basis to Underwriters National Assurance
Company.
Our auditors, Ernst & Ernst, each year confirm all
securities owned by UNAC, and we understand that the
auditors’ confirmations are to be sent directly to you.
12
We believe all matters regarding this deposit have been
covered. If, however, additional information is needed, we
would appreciate hearing from you.
Sincerely,
/s/ Bruce B. Bowers
Vice President and
Treasurer
BBB/cs
ene
13
5.
STATE OF INDIANA ) IN THE SUPERIOR COURT
) SS: oF MARION COUNTY,
COUNTY OF MARION ) Room No. 5
DEPARTMENT OF INSURANCE,
STATE OF INDIANA,
Petitioner,
CAUSE NO.
vs. $574 851
UNDERWRITERS NATIONAL FILED
ASSURANCE COMPANY,
Respondent.
ORDER OF REHABILITATION
Comes now Petitioner, Department of Insurance of the
State of Indiana, by Theodore L. Sendak as Attorney
General of Indiana and files their Verified Application for
Rehabilitation and Petition for Order to Show Cause in the
following words and figures to wit:
(H.1.)
And appears Respondent by counsel and waives notice
and waives hearing on Order to Show Cause and this
proceeding being submitted to the Court on said Verified
Application for Rehabilitation and Petition for Order to
Show Cause and the Court being duly advised in the
premises, now finds that the Department of Insurance of
the State of Indiana should, by the appointment of LLOYD
M. ALLEN, Commissioner of Insurance of the Department
of Insurance of the State of Indiana as Rehabilitator, take
possession of the business and assets of Underwriters
National Assurance Company and conduct the business
thereof and appoint such personnel as may be necessary to
August 5, 1974
me Ne ee ee ee ee ee ee ee ee
14
rehabilitate Underwriters National Assurance Company
as permitted by IC 1971 27-1-4-2 found at Burns’ (1965
Rep!) Section 39-3402(a) subject to the provisions of Clauses
(b) and (c) thereof and the further order of this Court.
IT IS THEREFORE CONSIDERED, ORDERED,
ADJUDGED AND DECREED, by the Court that the
Department of Insurance of the State of Indiana, by the
appointment of Lloyd M. Allen, Commissioner of Insurance
of the Department of Insurance of the State of Indiana as
Rehabilitator take possession of the business and assets of
Underwriters National Assurance Company and conduct
thereof and appoint such personnel as may be necessary to
rehabilitate Underwriters National Assurance Company.
/s/ Addison M. Dowling, Judge
Superior Court Room No. 5 of
Marion County
Dated: 8-5-74
15
{In the Superior Court of Marion County,
Indiana, Room No. 5]
[Title omitted in printing]
NOTICE TO POLICYHOLDERS
To: all persons who are or have at any time been holders
of contracts of insurance with Underwriters National
Assurance Company (“UNAC”).
This notice is issued pursuant to Rule 23 of the Indiana
Rules of Trial Procedure. If you are a member of the class of
all policyholders who now hold or have held contracts of
insurance with Underwriters National Assurance
Company this notice may affect your legal rights. The
Court has conditionally determined that the following
named individuals represent the class: B. M. Honeycutt; T.
J. Barconic; R. D. Fromme; J. E. Syman; T. E. Theiman; L.
J. DeAngelis; J. F. Mannion; and Robert Schultz.
Attorneys for the named policyholder representatives and
the class of all policyholders are: Smith and Carponelli, 10
South LaSalle Street, Suite 444, Chicago, Illinois 60603 and
Lewis, Wilson, Cowels, Lewis & Jones Ltd., 2054 North
14th Street, Arlington, Virginia 22216.
On August 5, 1974, UNAC was placed in rehabilitation
by order of this Court and the Department of Insurance of
the State of Indiana was appointed Rehabilitator. Since
that date no new business has been written and no matured
benefits under “Return of Premiurn Riders” have been
paid, but other insurance benefits have been paid.
The named representatives of the policyholder class, all
airline pilots who are holders of disability income policies,
initially brought two independent class actions against
UNAC. Schultz v. UNAC was filed on August 2, 1974, inthe
Circuit Court of Cook County, Chicago, Illinois, and was
subsequently removed to the United States District Court
16
for the Northern District of Illinois. Honeycutt, et al. v.
UNAC was filed on August 8, 1974, in the United States
District Court for the Eastern District of Virginia. The
complaints in those actions alleged that UNAC had misled
the named policyholder representatives and other
members of the class as to the overall economic conditions
of the corporation and as to the extent these policies were
actuarially sound. They further alleged that these
misrepresentations were accomplished, among other
means, by a vigorous advertising campaign and through
letters to individual policyholders and that, as a result, the
company was unjustly enriched. Both of these actions
(along with other litigation based on the same or similar
claims) have been stayed by order of the judge in the
rehabilitation proceeding. The named class representatives
thereafter filed petitions to intervene on behalf of
themselves and the class in these rehabilitation
proceedings. They have been conditionally determined to
represent as intervenors, the class of all UNAC present and
former policyholders.
Any judgment whether favorable or not which may be
entered in this action will be binding upon each member of
the intervening class who does not request exclusion
pursuant to Rule 23(b)\(3). Any class member who wishes to
be excluded from the class may do so by filing with the
Clerk of the Superior Court of Marion County, Room No. 5,
Indianapolis, Indiana, a written request for exclusion
which must be received by the Clerk on or before January
15, 1976. Any person so requesting exclusion will not
participate in any recovery on behalf of the intervening
class, and will not be bound by the results of the litigation,
insofar as his status as a member of such class is concerned.
As a policyholder, however, he may be bound by a
judgment affecting policyholders, if any is entered,
including any reorganization plan approved by the Court
in the rehabilitation proceeding. Any policyholder,
whether or not he requests exclusion, may as he desires,
17
enter an appearance through his own counsel. Each
member of the class not requesting exclusion, whether or
not he enters such an appearance will be bound by any
judgment in this proceeding.
On September 22, 1975, a Status Report was filed with
this Court including detailed financial and actuarial
information developed by the Department of Insurance of
the State of Indiana, as Rehabilitator of UNAC since
August 4, 1974. The report is available for inspection in the
files of this Court and copies may be obtained at a cost of
$24.50 each from the Department of Insurance of the State
of Indiana, Room 509, State Office Building, Indianapolis,
Indiana 46204. In brief summary, it is the conclusion of the
Rehabilitator that (a) UNAC’s reserves for Return of
Premium Rider (RPR) issued by UNAC were inadequate
and (b) that UNAC’s reserves as to disability income
policies were also inadequate, apart from RPR aspects.
Pursuant to these rehabilitation proceedings two
alternatives for the future of the company are available: (1)
liquidation and distribution of the available assets; and (2)
a reorganization and rehabilitation. It isthe present hope of
the Rehabilitator that the company can be reorganized and
continue offering insurance to present policyholders and
new policyholders in the future.
The Rehabilitator with the aid of independent actuaries
and accountants, has developed a proposed plan of
rehabilitation and has supplied it to policyholder class
representatives and their attorneys, and to intervenors on
behalf of a class of shareholders of UNAC International
Corporation (UNAC’s holding company) and their
attorneys. The Rehabilitator hopes to secure the agreement
of the representative parties to a plan and would then
submit the plan to the Court for approval or disapproval
with hopes to implement the plan with a minimum of delay
and expense. However, there can be no assurance that this
will be accomplished.
18
Effective September 30, 1975, the Rehabilitator has
reserved all additional premiums charged for RPR
benefits in a separate account and proposes to recommend
to the Court that those additional premiums (but not the
premiums for underlying coverage) be returned to the
policyholders. The Rehabilitator also has under study the
possibility and administrative feasibility of returning to
RPR policyholders the additional premium charged for
RPR benefits from August 5, 1974, to September 30, 1975.
As of September 30, 1975, no commissions have been paid
to agents as a result of RPR premiums. To the extent that
any policyholder with an RPR on his policy wishes to
discontinue paying the additional premium charged for
RPR benefits, the Rehabilitator will not assert that the
action prejudices in any way his right to underlying
insurance benefits. It may, of course, reduce the total
consideration to the policyholder on account of his RPR
rights under any plan of rehabilitation ultimately
approved by the Court.
It is the Rehabilitator’s view that the principal goal of the
rehabilitation process is to permit UNAC to become an
ongoing, financially responsible insurer, in order to
provide insurance benefits. To that end the Rehabilitator
has concluded that (a) elimination of continued writing of
Return of Premium Riders is necessary and that this
company’s liability for existing RPR benefits must be
compromised at less than full face value, and (b) the
benefits afforded under disability income policies in the
past must be reduced or a premium for such benefits raised
as to all persons except those who have already incurred
claims.
The Rehabilitator and policyholder representatives have
concluded that there may be valid claims for recovery of
damages from UNAC’s former management or advisers or
others. Therefore, both the Rehabilitator and the
policyholder representatives on behalf of the class of
policyholders contemplate the institution of litigation to
19
assert whatever rights UNAC or the policyholders may
have to receive damages for mismanagement, breach of
contract, negligence or other rights of action. The proceeds
of any recoveries would inure to the benefit of the
policyholders and UNAC.
Negotiations with all representatives and parties
concerned have been proceeding since August 4, 1974, and
it is hoped thata final plan of reorganization will be arrived
at in the near future. The details of a plan of rehabilitation
will be made available to all policyholders and parties
wher filed with this Court.
On December 1, 1975, James A. Newpher, a policyholder
of UNAC, filed a petition for intervention in the
rehabilitation proceeding asserting that his interests are
not represented by the named representatives of the
policyholder class, stating that he does not desire to be
represented by them, and requesting that an investigation
be conducted of certain matters in the rehabilitation
proceedings. The Department of Insurance of the State of
Indiana, as Rehabilitator, has advised the Court that the
matters raised in Mr. Newpher's petition have been
discussed by the Rehabilitation with the policyholder class
representatives and are under consideration. These include
the treatment of RPR premiums described above and the
method of advising the policyholders of the status of the
rehabilitation. The Rehabilitator has also advised the
Court that it has no objection to any investigation but does
not believe the expense of additional independent
consultants is warranted or should be borne by UNAC. The
Department of Insurance, as Rehabilitator, takes the
position that is has and will continue to administer the
rehabilitation in the best interests of the policyholders. To
that end the Department is attempting to restore the
company to a condition in which it can operate successfully.
The entire Court file in this action is available for
inspection by any class member or his or her counsel during
20
regular business hours in the Superior Court of Marion
County, Room No. 5, Indianapolis, Indiana. Inquiries
concerning this matter may also be directed to the above
named attorneys for the policyholder class.
This notice should not be construed as an expression of
the Court’s opinion on the merits of any claims or of any
defenses which may be raised in this action.
Michael T. Dugan, II
Judge, Marion County Superior
Court, Room No. 5
December 3, 1975
21
7.
[Notice In The Superior Court of
Marion County, Indiana, Room No. 5]
STATE OF INDIANA SEAL INDIANAPOLIS 46204
THE DEPARTMENT OF INSURANCE ;
509 STATE OFFICE BUILDING
August 1976
To: Policyholders of Underwriters National Assurance
Company
Previous notice to you advised that Underwriters National
Assurance Company was placed in Rehabilitation on
August 5, 1974, and the company has been under the
jurisdiction of the Department of Insurance since that date.
The Department of Insurance submitted a Plan of
Rehabilitation to the Court which has now been tentatively
approved for distribution to UNAC policyholders and
other interested persons, after an initial hearing on June 9,
1976, at which the policyowner class, among other parties,
was represented by counsel. Along with the Plan we have
included a data sheet which indicates exactly how the plan,
as tentatively approved, would affect you individually.
The Court has set a hearing for October 14, 1976, at which
time it will make a final decision on the plan to be
implemented after it has heard any additional objections
which are properly filed prior to September 14, 1976. The
procedure for filing objections or intentions to be heard is
spelled out in the enclosed “Notice of Hearing.” I would
encourage you to act promptly if you have suggestions
which merit the Court’s consideration.
No decision by you is necessary at this time as to which of
the options in the Plan you desire. This decision will be
yours to make subsequent to the October 14 court ruling.
You will then be presented with the court-approved plan
22
and at that time be required to make your decision based on
your individual desires.
H. P. Hudson
Commissioner
HPH: aw
Enclosures
23
[Title omitted in printing]
NOTICE OF HEARING
TO: All parties interested in Underwriters Natic~al
Assurance Company (“UNAC”), including each
UNAC policyowner, all managers, supervisors or
agents of UNAC, all state insurance guaranty
associations, all state insurance departments, any
person who has appeared in this proceeding and any
other creditor or party determined by UNAC or the
Rehabilitator to have a claim or potential claim
against UNAC
You are hereby notified that on October 14, 1976, at 9:00
A.M. in Room W-507, City-County Building, Indianapolis,
Indiana, 46204, there will be a final hearing before Judge
Michael T. Dugan II, Superior Court of Marion County,
Indiana, Room No. 5, to consider proposed plans of
rehabilitation for UNAC and settlement and compromise
of all claims asserted on behalf of the class of policyowners
of UNAC or the class of stockholders of UNAC
International Corporation. Attached hereto is a copy of the
Proposed Rehabilitation Plan for UNAC tentatively
approved by the Rehabilitation Court on July 19, 1976,
after an initial hearing at which parties, including
representatives of certain classes described hereafter,
presently represented by counsel or appearing on their own
behalf had an opportunity to be heard.
At the final hearing, any interested parties may appear
and be heard concerning the Proposed Rehabilitation Plan
and settlement. Each person intending to object to the
Proposed Rehabilitation Plan or to appear at the hearing
must file a notice of such intention to object or to appear
with the Court, at the above address, by September 14,
1976, together with a brief statement of any objections to
the Proposed Rehabilitation Plan and any matters to be
presented at the hearing. A copy of each paper filed must be
served by mail on counsel for the Rehabilitator, Theodore R.
Boehm, Baker & Daniels, 810 Fletcher Trust Building,
Indianapolis, Indiana 46204.
24
For the possible effect of rehabilitation upon your rights,
your attention is directed to the provisions of the Proposed
Rehabilitation Plan enclosed. If your policy is a life
insurance contract there is no change proposed in your
coverage and no data sheet is enclosed. For all other
policyowners, the enclosed data sheet constitutes a part of
this notice and sets forth the specific amounts of any
payments that would be due you under the Proposed
Rehabilitation Plan and any changes that would be effected
in your insurance benefits if the Proposed Rehabilitation
Plan is approved after the final hearing without
modification. The specific information on this data sheet
regarding actual dollar amounts as related to your options
under the Proposed Rehabilitation Plan is based on UNAC
records as of the date of this notice. That information may
vary substantially in any plan as ultimately approved.
Changes may be required by Court modifications to the
Proposed Rehabilitation Plan or by necessary adjustments
to the underlying data. You are not now required to select
any option. This data is for information only. This notice,
with its enclosures, is meant only to advise you of the final
hearing on the Proposed Rehabilitation Plan for UNAC
and proposed settlement of class actions, and to advise you
to the extent possible at this time, how the Proposed
Rehabilitation Plan, if finally approved by the Court,
would affect you as an interested party.
If you are a member of the policyowner or stockholder
classes, you should know that class attorneys have been
awarded preliminary attorneys’ fees for legal services at
the rate of $50.00 per hour for services rendered prior to
May 27, 1976, in the aggregate amount of $40,800 for
stockholder class counsel and $166,325 for policyowner
class counsel, plus expenses. Said attorneys niay petition
for additional fees for services after May 27, 1976, upon
approval of a final plan of rehabilitation.
The Proposed Rehabilitation Plan provides in part XIII
that upon final approval of the Proposed Rehabilitation
25
Plan, all claims against UNAC by policyowners or others
are compromised and dismissed and all persons are
discharged from any liability for acts during the
rehabilitation of UNAC.
By Order of the Court, dated July 19, 1976.
Date:
THE DEPARTMENT OF
INSURANCE OF THE
STATE OF INDIANA,
Rehabilitator of UNAC
27
{In The Superior Court of Marion County,
Indiana, Room No. 5]
[Title omitted in printing]
FILED OCTOBER 12, 1976
INFORMATION TO THE COURT AND PETITION
FOR APPROVAL OF MAILING TO CERTAIN
POLICYHOLDERS OF UNAC AND APPROVAL OF
CONCEPT OF SERVICE CONTRACT BETWEEN
GUARANTY ASSOCIATIONS AND UNAC
The eight state Guaranty Associations which are parties
herein and represented by counsel of record may owe
certain benefits to certain UNAC policyholders who
qualify, depending upon the election such policyholder
makes under the final Plan of Rehabilitation. In order to
discharge their statutory obligations, the Guaranty
Associations deem it necessary to inform the potential
recipients of Guaranty Association benefits of their rights,
in writing, and to do so contemporaneously with the
mailings of the Rehabilitator to all policyholders
concerning the election of options under any plan the Court
finally approves. A copy of this correspondence which all
eight Guaranty Associations herein have approved, and
which they in turn submit to the Court, is attached hereto.
The Guaranty Associations believe that this letter will
clarify for certain policyholders that might be eligible for
Guaranty Association benefits their rights with regard to
the effect that any final Plan of Rehabilitation might have
upon such rights.
The Guaranty Associations realize that by operation of
the Plan of Rehabilitation there will be certain limitations
against the rights of certain policyholders as they existed
prior to such rehabilitation under contracts of insurance
issued by UNAC, to-wit:
(1) Certain of such policyholders who have heretofore
had noncancellable insurance policies which provide in
28
effect that there can be no increase of premium on their
policy during the life of the policy, and said policies now
have been changed by the Plan of Rehabilitation to
guaranteed renewable policies in which there is a
possibility and a probability that there will be an increase
in premium.
(2) Certain of such policyholders are the owners of
policies which have a return of premium rider which
provides for the return of a certain portion of premium
under conditions set out in said policies, and that all of said
rights of continued effectiveness of any return of premium
rider are terminated by the Plan of Rehabilitation; and
both of said rights are guaranteed by the Guaranty
Association under certain circumstances provided a
policyholder qualifies. In order to meet their statutory
obligations and guarantee such rights, the Guaranty
Associations respectfully submit that it is for the best
interests of the policyholders and in the interest of uniform
handling and the avoidance of confusion in the servicing of
certain policies existing between UNAC and its
policyholders, that UNAC will continue as a rehabilitated
company in the issuing and servicing of the basic coverage
of policies heretofore issued by it with certain exceptions.
To this purpose, a service contract within the concept set
out in the attached form, shall be entered into by both
Guaranty Associations and UNAC with the approval by the
Court as to its final form and terms.
WHEREFORE, the Guaranty Associations pray that the
Court approve the proposed mailing to certain
policyholders and further approve the concept of a service
agreement between the individual Guaranty Associations
and UNAC.
KIGHTLINGER YOUNG GRAY
& DE TRUDE,
by /s/ Donald L. Dawson
Attorneys for Guaranty Associations.
29
Fifth Draft of Letter to Policyholders
October 7, 1976
Dear (Policyholder):
The Underwriters National Assurance Company
(UNAC) Rehabilitation proceeding in the Superior Court
of Marion County, Indiana is now concluded. The records of
UNAC that have been made available to us indicate that
you may be entitled to benefits from the Guaranty
Association, providing you qualify. In this regard, if you
intend to claim benefits from this Guaranty Association,
you must execute the enclosed “Affidavit Regarding
Residency and Policy Information” and return same to this
office. From the information contained therein it will be
determined if you qualify for benefits. The Guaranty
Association benefits, if any, that you may qualify for are as
specified below.
A final plan for the rehabilitation of Underwriters
National Assurance Company was approved by the
Superior Court of Marion County, Indianaon You
were mailed a “Proposed Rehabilitation Plan for
Underwriters National Assurance Company” in August of
1976. The options under the final plan are identical to those
in such proposed plan.
You will, if you have not already, receive correspondence
from the Department of Insurance of the State of Indiana
instructing you how to inake the required election under
the final plan as approved by the Court. The option you elect
under the plan can affect your right to benefit under the
(State Guaranty Association Act)
provided you qualify for any such benefits in the first
instance.
Irrespective of what option you elect under the plan
approved by the Court, if you qualify for benefits, you will
be entitled to receive from (the particular state) Guaranty
30
Association Return of Premium (RPR) benefits, provided
the benefits matured under your policy between August 5,
1974 and (date that plan was approved by the Court).
If you choose to elect Option 1 under the plan and by so
doing receive a liquidated cash value and terminate your
policy, you will not be entitled to any benefits from any
Guaranty Association.
If you hold a non-cancellable policy with Return of
Premium rider and elect Option 2 and receive an “RPR”
liquidated cash value and terminate the “PRP” rider but
retain basic coverages, you may be entitled to benefits from
the __.____ Guaranty Association, but such benefits, if
any, would be limited to the amount of any increased
premium charge to you in the future for continued
coverage on a guaranteed renewable basis.
If you hold a guaranteed renewable policy with Return of
Premium rider and elect Option 2 and receive an “RPR”
liquidated cash value and terminate the “RPR” rider but
retain basic coverages, you will not be entitled to any
benefits from any Guaranty Association.
If you do not choose to elect Option 1 or Option 2, or if you
are not deemed to have elected Option 2 under the final
plan, you have available to you a third alternative. To
exercise this alternative, you must assign to the
Guaranty Association all your rights under the final
rehabilitation plan. You may accomplish this by executing
the enclosed “Assignment of Rights Under Rehabilitation
Plan for Underwriters National Assurance Company” and
returning same to this office along with the enclosed
“Affidavit Regarding Residency and Policy Information.”
If you elect this alternative, provided you meet the
residency requirements, the Guaranty Association
will guarantee the terms of your existing insurance policy.
These guarantees, however, will be in lieu of any other cash
payment, benefits, or rights that you might otherwise be
entitled to under the plan of rehabilitation, by the election
of Option 1 or Option 2.
31
If you elect the third alternative, you must do so by
executing the enclosed Assignment and mailing it to the
Guaranty Association no later than midnight, the
This letter is meant simply to inform you concerning the
rehabilitation of UNAC as it might relate to your rights
under the _______ Guaranty Association Act. You should
not consider this letter in any way a recommendation to
continue your policies with UNAC or any representation on
the part of the Guaranty Association with respect to the
solvency of UNAC or of its ability to continue to do business.
We welcome any inquiries, but to avoid any possible
confusion in responding to same, all inquiries must be in
writing and addressed to this Guaranty Association.
32
ROUGH DRAFT—UNAC CONTRACT WITH
GUARANTY ASSOCIATIONS
SERVICE CONTRACT
THIS AGREEMENT entered into this __ day of
1976, by and between UNDERWRITERS
NATIONAL ASSURANCE CORPORATION (hereafter
referred to as UNAC) and the (hereafter
referred to as the Guaranty Association)
WITNESSES:
WHEREAS, UNAC is, under the jurisdiction of the
Superior Court of Marion County, Room No. 5, now in the
custody of the Insurance Commissioner of the State of
Indiana under proceedings for rehabilitation; and
WHEREAS, a plan for rehabilitation has been finally
approved by the Judge of Superior Court Room No. 5,
providing for the rehabilitation of said company; and
WHEREAS, by said plan of rehabilitation the rights of
certain policyholders as to protection of the policies issued
by UNAC are limited or terminated; and
WHEREAS, the Guaranty Association pursuant to the
law of its State, is required to offer certain protections to
policyholders who qualify under the law of that State and to
guarantee performance of certain of the contracts of
insurance issued by UNAC to qualified residents of that
State; and
WHEREAS, by the operation of the plan of rehabilitation
there will be the following limitations against the rights of
said policyholders as they existed prior to said
rehabilitation under contracts of insurance issued by
UNAC, to-wit:
1. Certain of said policyholders have heretofore had non-
cancellable insurance policies which provide in effect
that there can be no increase of premium on their
33
policy during the life of the policy and said policies
now have been changed by the plan of rehabilitation to
guaranteed renewable policies in which there is a
possibility and a probability that there will be an
increase in premium.
2. Certain of said policyholders are the owners of policies
which have a Return Premium Rider which provides
for the return of a certain portion of premium under
conditions set out in said policies and that all of said
rights of continued effectiveness of any Return
Premium Rider are terminated by the plan of
rehabilitation;
and both of said rights are guaranteed by the Guaranty
Association which is party to this Agreement; and
WHEREAS, it is for the best interests of the
policyholders and in the interest of uniform handling and
the avoidance of confusion in the servicing of policies
existing between UNAC and its policyholders; and
WHEREAS, UNAC will continue as a rehabilitated
company in the servicing of the basic coverage of policies
heretofore issued by it with the above exceptions;
IT IS, THEREFORE, AGREED BETWEEN THE
PARTIES:
1. That UNAC will continue to service the policyholders in
the same manner as it has previously done and that all
billing for premiums and all collection of premiums and
the payment of all claims arising under policies will be
made by UNAC, except as hereafter set out.
2. That UNAC will maintain adequate data processing
records in order to determine the status of all policyholders
and to provide such information to the Guaranty
Association to the extent required for the performance of
their duties.
3. In the event that an increase in premium is achieved
by UNAC for policyholders whose policies are guaranteed
34
by the Guaranty Association and which were previously
non-cancellable policies, UNAC will keep a separate
record of said increase and will bill the Guaranty
Association for the increase on all policies which the
Guaranty Association has certified to UNAC as being
properly covered under the Guaranty Association Law.
UNAC will bill the policyholders at the guaranteed rate
and will bill the Association for the increase in rate. The
Guaranty Association will pay to UNAC the amount of such
increase within thirty (30) days after the base premium is
paid by the policyholder and UNAC will continue the basic
coverages of the policy to the policyholder as if all of said
premium had in fact been paid by the policyholder.
4. With regard to Return Premium Riders, if any
policyholder desires to continue to carry and pay the
premium for Return Premium Rider, UNAC will collect
said premium from the policyholders who have been
certified as eligible by the Guaranty Association and will
hold said funds for the use and benefit of the Guaranty
Association, making due accounting therefor monthly.
In the event of maturity of the Return Premium Rider as
to any policyholder after the date of this contract, the
benefits payable under the Return Premium Rider will be
paid by UNAC as agent for this purpose and UNAC will
provide the Guaranty Association with al! statistical data
necessary to determine the amount and eligibility of the
claimant to Return Premium Rider benefits and the
Guaranty Association will reimburse UNAC within 30
days of notice. For this purpose UNAC will submit for
approval a settlement procedure manual for verification
and payment of these benefits.
5. Inasmuch as the plan for rehabilitation provides for
the exercise of certain options by policyholders and
inasmuch as the Guaranty Association will require
assignment to the Guaranty Association by assureds whose
rights are protected by said Association of all of their rights
35
under the plan, UNAC undertakes to recognize said
assignment and to make payments of the funds and
amounts payable to such policyholders under the plan to
the Guaranty Association pursuant to said assignment and
the Guaranty Association will hold said funds for the
purpose of honoring its obligations under the Return
Premium Riders which may have matured between
August 4, 1974 and the date of this Agreement and which
may hereafter mature upon continued payment of
premium by the policyholders.
6. In return for its services as set out in this contract
UNAC will be paid by the Guaranty Association a fee to be
determined on the basis of a determination of the cost of
rendering said service.
7. All funds due to the Association and collected by
UNAC shall be remitted directly to the Association at such
office and address as the Guaranty Association shall from
time to time direct and all funds due to UNAC from the
Guaranty Association shall be paid directly to the
managers of UNAC by said Association within thirty (30)
days after receiving invoice therefor.
8. The Association shall be entitled to require an audit
at its expense at any reasonable time to review all payments
and receipts contemplated by this contract.
9. No agents commission shall be paid or charged on
any amount collected for or paid by the Association.
10. The parties consider that payments by the
Association of the amounts representing difference
between basic guaranteed premium and the new premium
are not premium but are a fee paid by the Association to
UNAC to induce UNAC to continue the policy without
increase of premium.
11. Monies paid by the policyholder to preserve his
rights under the Return Premium Rider are not a premium
for coverage but are a deposit to preserve the rights of the
36
policyholder under the Guaranty Association statute and
the Association is not an insurer but is a guarantor only.
12. If any premium tax is charged by any »tate on any
payment made by or to the Association under this contract,
the Association will hold UNAC harmless and reimburse
said expense.
13. This Agreement shall be binding on the parties and
their successors and assigns, including any succeeding
management of UNAC.
14. The parties contemplate that this contract shall
remain in force so long as the liability of the Association
continues and UNAC remains in business. However, the
parties may terminate the contract by mutual agreement
or either party shall be entitled to require termination with
six (6) months notice to the other in writing.
37
9.
STATE OF INDIANA ) IN THE SUPERIOR COURT
) SS: oF MARION COUNTY,
COUNTY OF MARION ) Room No. 5
DEPARTMENT OF INSURANCE,
STATE OF INDIANA,
Petitioner,
CAUSE NO.
vs. S574-851
UNDERWRITERS NATIONAL
ASSURANCE COMPANY,
Respondent.
ORDER AND MEMORANDUM APPROVING
PLAN OF REHABILITATION AND
SETTLEMENT OF CLAIMS AND LITIGATION
This cause comes before the Court for final consideration
of the Proposed Rehabilitation Plan for Underwriters
National Assurance Company (“UNAC”) which was
tentatively approved by the Court on July 19, 1976, for final
consideration of all other proposals concerning, or
objections to, the tentative plan and for final consideration
of the settlement of all claims and litigation involved in this
rehabilitation proceeding.
Pursuant to the Order Concerning Procedure To Be
Followed in Considering Rehabilitation Plans, dated
March 19, 1976, and pursuant to notice sent to all parties
who have appeared by counsel in this proceeding, the Court
on June 9, 1976, heard evidence and argument concerning
the various plans and proposals for rehabilitating UNAC.
After the hearing, the Court on July 19, 1976, entered its
Order Approving Tentative Plan of Rehabilitation and
ee
38
Settlement of Class Action Claims, tentatively approving a
plan of rehabilitation for UNAC and setting forth the
procedures to be followed in mailing the tentative plan and
the notice of the final hearing to all interested parties. On
July 30, 1976, the Court entered an additional Order
concerning those procedures. As set for .h in the Certificate
of Compliance with Orders Concerning Mailing of
Tentative Plan of Rehabilitation, filed by the Rehabilitator
on October 12, 1976 UNAC has complied with the Court’s
Orders of July 19, 1976, and July 30, 1976.
On October 14, 1976, and October 20, 1976, the Court
heard additional evidence and argument relating to the
tentative plan and the various plans, proposals and
objections concerning the rehabilitation of UNAC. The
Court has also received numerous letters and comments
from persons interested in the affairs of UNAC, principally
policyowners, concerning the tentative plan and the effect
of rehabilitation upon individual rights. The numerous
parties to this rehabilitation proceeding have filed various
stipulations, briefs, arguments, and suggestions.
Having considered the evidence, arguments, pleadings,
correspondence, proposals and all other matters presented
to the Court in this lengthy rehabilitation proceeding, the
Court makes the following findings:
1. The Court has jurisdiction over the subject matter
and over the parties, including UNAC, UNAC International
Corporation, all UNAC policyowners, creditors, agents,
brokers or managers, state insurance guaranty associations,
and shareholders of UNAC International Corporation.
2. The Plan of Rehabilitation for Underwriters
National Assurance Company (“Plan”) in the form
attached hereto as Exhibit A is equitable and treats fairly
each class of policyowners. The Plan makes adequate
provision for the rights and interests of policyowners,
creditors, agents and stockholders and the other persons
interested in the affairs of UNAC.
39
3. The Plan is approved by the Court is the most feasible
program for correcting or removing the causes and
conditions which made the UNAC rehabilitation
proceeding necessary and for restoring UNAC to viable
financial status. The Plan accomplishes the purposes of the
rehabilitation proceeding and complies with the Indiana
Insurance Laws, including IC 27-1-4-2.
4. The Court has thoroughly considered all claims,
objections and proposals filed by the various parties herein.
To the extent that any such claim, objection or proposal is
inconsistent with the Plan, the Court finds that the claim,
objection or proposal should be overruled and relief to that
extent denied.
5. The Court finds that the mailing of the tentative plan
and Notice of Hearing, as evidenced by the Certificate of
Compliance with Orders Concerning Mailing of Tentative
Plan of Rehabilitation, filed by the Rehabilitator on
October 12, 1976, constitutes the best notice practicable
under all of the circumstances and requirements of due
process of the proposed rehabilitation of UNAC and of the
rights and duties of the interested parties with respect
thereto.
6. Since the Order of Rehabilitation was entered on
August 5, 1974, the Indiana Department of Insurance, as
Rehabilitator of UNAC, has acted pursuant to the Orders
of this Court within the applicable statutes. Although
objections have been filed, no evidence of any sort has been
offered which suggests that the Rehabilitator or its agents
or employees acted in any way inconsistent with statutory
or common law duties. Moreover, the evidence failed to
show any grounds for not discharging the Rehabilitator
and its agents and employees from liability for their acts
incident to the rehabilitation of UNAC. Such adischarge is
in addition to the statutory immunity of the Department
pursuant to IC 27-1-3-1 and IC 34-4-16.5-3. However, a
discharge will beneficially affect the carrying out of the
40
Plan by eliminating the assertion of contingent claims to
indemnity rights and the assertion of other claims and
allegations that may deter the employment of management
for the rehabilitation of the Plan.
Further, the Plan, after due hearing, adjudicates and
discharges all pending claims, and assertions as they relate
to the Rehabilitator or the process of rehabilitation.
7. The Voting Trust and Depositary Agreement in the
form attached hereto as Exhibit B is the most appropriate
method presented to the Court for implementing part
VIII(A) of the Plan, and should be approved by the Court.
It is, therefore,
ORDERED, ADJUDGED AND DECREED:
(1) The Plan is hereby adopted and approved in the
form attached hereto as Exhibit A.
(2) The Voting Trust and Depositary Agreement is
hereby approved in the form attached hereto as Exhibit B.
(3) To the extent that any claim, objection or proposal
which was or could have been presented in this
rehabilitation proceeding is inconsistent with the Plan,
that claim, objection or proposal is overruled and relief to
that extent denied. Without limiting the generality of the
preceding sentence, all claims or litigation by any past or
present UNAC policyowners, UNAC International
Corporation, UNAC agents, brokers or managers, UNAC
officers and directors, UNAC creditors, and shareholders
of UNAC International Corporation against UNAC or the
Rehabilitator, except as provided in the Plan, are hereby
compromised, settled and dismissed.
(4) UNAC is directed, after termination of this
rehabilitation proceeding (a) to cause the Plan, a datasheet
concerning the exercise of individual policyowner options,
a cover letter from UNAC or the Rehabilitator and this
Order to be printed or otherwise reproduced and mailed to
each of the persons who received the mailing directed by
41
the Court’s Orders of July 19, 1976, and July 30, 1976; (b) to
pay the printing and mailing at UNAC’s expense; and (c) to
file or cause to be filed with the Court a Certificate of
Compliance identifying the parties to whom the Plan, the
data sheet, the cover letter and this Order were mailed and
stating the amount of costs incurred in connection with
printing and mailing.
(5) UNAC and the Rehabilitator are authorized and
directed to do all acts necessary or appropriate to cause to
be implemented the provisions of the Plan and the Voting
Trust and Depositary Agreement subject to the approval of
the Court. To the extent that any provision of the Plan
cannot be fully implemented because of the lack of
approval of regulatory authorities in Canada or the United
Kingdom, UNAC and the Rehabilitator are authorized and
directed to implement the provision to the extent possible
at the time of termination of this rehabilitation proceeding.
Without limiting the generality of the preceding sentence,
UNAC is authorized and directed to make distributions
under the Plan of liquidated cash values, after termination
of this rehabilitation proceeding, based upon calculations
which exclude from the assets of UNAC the fair market
value in exchange dollars of assets on deposit in Canada and
the United Kingdom. If UNAC believes that such
distributions to policyowners in the United States or in
Canada or in the United Kingdom should not be made until
approval of regulatory authorities in Canada or the United
Kingdom or until other provision is made for policies of
Canadian or United Kingdom policyowners, then UNAC
shall petition the Court for authority to delay such
distributions.
(6) All parties of interest are directed to nominate to the
Court within 30 days names and biographical data of
nominees to serve under the Voting Trust and Depositary
Agreement.
42
(7) Following approval by the Court of from five to
eleven Trustees, the names of the persons so approved and
selected shall be published. UNAC International
Corporation, the policyowner class representatives and the
Trustees are directed to execute the Voting Trust and
Depositary Agreement promptly thereafter. Within 30
days after execution the Trustees shall meet and elect the
Board of Directors of UNAC. Upon election by the Board,
the President and Secretary of UNAC shall immediately
thereafter execute the Voting Trust and Depositary
Agreement on behalf of UNAC. However, the Voting Trust
and Depositary Agreement shall be a binding obligation of
UNAC from the date of this Order.
(8) UNAC International Corporation is directed to do
all acts and things necessary or appropriate to cause to be
carried out its obligations under the Plan and the Voting
Trust and Depositary Agreement, including, but not
limited to, surrender and transfer of its certificate or
certificates for all shares of UNAC stock to the Depositary
in exchange for voting trusts certificates.
(9) The policyowner class representatives are directed
to do all acts and things necessary or appropriate to cause to
be carried out their obligations under the Plan and the
Voting Trust and Depositary Agreement.
(10) This Order is final as to all matters occurring prior
to the date of this Order. The Court shall retain jurisdiction
over the parties and over this rehabilitation proceeding on
petition of any interested party or the Indiana Department
of Insurance (a) to resolve all questions as to interpretation
and implementation of the Plan and as to the application of
the Plan to specific facts and circumstances and (b) to
modify, amend or supplement the Plan in any respect in the
light of future developments. The Court shall also retain
jurisdiction over the parties and over this rehabilitation
proceeding during the implementation of the Plan to the
extent necessary or appropriate to assure compliance with
43
the provisions of the Plan and the Voting Trust and
Depositary Agreement and to resolve all questions in that
respect. The Rehabilitator (and after termination of this
proceeding, the Indiana Department of Insurance), with
the approval of the Court, insofar as it does not materially
and adversely affect the interests of the policyowners, shall
supply any defects or omissions or reconcile any
inconsistency in the Plan in such a manner and to such
extent as may be necessary or appropriate to carry out the
Plan. The Rehabilitator, Trustees and the Indiana
Department of Insurance are authorized and directed to
bring to the attention of the Court all matters coming tothe
attention of the Rehabilitator or the Indiana Department of
Insurance which, in the judgment of the Rehabilitator,
Trustees or the Indiana Department of Insurance, require
or warrant the exercise by the Court of the continuing
jurisdiction hereby retained.
(11) Counsel for the policyowner class and stockholder
class shall submit to the Court, to UNAC and to the
Rehabilitator sworn statements of the dates, nature of
services and time expended in connection with this
rehabilitation proceeding since April 1, 1976. Such sworn
statements shall not include services and time expended in
any other proceeding of matter, specifically including, but
not limited to, the litigation now pending in the Hamilton
Superior Court that has been the subject of previous fee
petitions in this proceeding. To the extent that the time
included in any such sworn statement is approved by order
of this Court, UNAC is authorized and directed to
compensate the counsel submitting such statement at the
rate of Fifty Dollars ($50) per hour for such time. UNAC is
also directed to pay all legal fees and expenses and expenses
heretofore and hereafter incurred by the Rehabilitator,
UNAC, or the Indiana Department of Insurance in
connection with this rehabilitation proceeding, including
any fees for services rendered in the implementation of this
Order, whether prior to or subsequent to the termination of
44
this proceeding. “UNAC is also directed to pay all expenses
heretofore and hereafter issued by the policyowners and
stockholder class counsel for services rendered in the
implementation of this Order, whether prior to or
subsequent to the termination of this proceeding.”
(12) Upon election of the Board of Directors of UNAC
as directed in paragraph (7), UNAC shall be released from
rehabilitation, and UNAC shall be permitted to resume
possession of its property and the conduct of its business
pursuant to IC 27-1-4-2, and this rehabilitation proceeding
shall be terminated, subject, however, to the continuing
jurisdiction retained by the Court. Upon such termination
the Rehabilitator shall no longer serve in such capacity,
and the Indiana Department of Insurance shall have the
same relationship to UNAC as to any other insurance
company organized under the laws of this State, except as
specifically provided in the Plan. The right of the Indiana
Department of Insurance pursuant to part VIII of the Plan
to maintain a representative at UNAC’s office after
termination of this proceeding shall not any duty or
obligation of the Department or any officer, agent or
employee thereof to the State of Indiana or any other entity
or person that does not exist apart from that provision of the
Plan.
(13) The Indiana Department of Insurance and all of its
present and former Commissioners, officers, agents and
employees are hereby discharged from any and all liability
for their acts incident to the rehabilitation of UNAC prior
to the date of this Order. Upon the election of the Board of
Directors of UNAC as directed in paragraph (7) the
Rehabilitator may apply to the Court for a supplemental
discharge from any and all liability for acts incident to the
rehabilitation of UNAC after the date of this Order but
prior to the election of the Board of Directors. Nothing in
this Order shall affect any defense the Indiana Department
of Insurance or any officer, agent or employee thereof may
have, based on sovereign immunity or any other ground, to
45
any claim or contention relating to any act prior to, during
or after this proceeding.
(14) Each party to this proceeding shall! bear its or his
own costs except as specifically set forth in paragraph (11).
/s/ Michael T. Dugan, II, Judge
Superior Court No. 5, of
Marion County
DATE: November 22, 1976
46
IN THE SUPERIOR COURT
OF MARION COUNTY,
ROOM NUMBER FIVE.
CAUSE No. S 574-851
DEPARTMENT OF INSURANCE
STATE OF INDIANA,
Petitioner,
vs.
UNDERWRITERS NATIONAL
ASSURANCE COMPANY,
Respondent.
I. STATEMENT OF FACTS
‘UNAC is a class I capital stock Indiana Insurance
Company meaning it is authorized and licensed under the
Indiana Insurance Code of 1935 (Acts 1935, Ch. 152, Sec. 59
Burn’s Ind. Stats. Ann. §27-1-2-1) to write life, disability
and health and accident insurance. UNAC International is
an Indiana holding company operating under the Indiana
Insurance holding company statute and regulations
(Burn’s Ind. Stats. Ann. §27-1-23-1) and owning all the
issued and outstanding shares of UNAC. UNAC was
incorporated in 1961 and has outstanding capital stock of
971.079 shares, {all one class) with a par value of $1.50 per
share, amounting in dollars to a paid in capital of
$1,456,518.50 (1974 Annual Report.).
UNAC International was incorporated in 1970 and has
1,254,505 shares of stock, all common, issued and
outstanding and owned by 2,033 shareholders (As of
September 5, 1975).
In 1974, the Department of Insurance caused its
examiners to make an examination of UNAC’s 1973
Nm me Ne re re ee ee ee ee ee”
47
Annual Report of financial conditions and affairs,
particularly with respect to its reserve for payment of
claims and the return of Premium Rider Reserve. This
report concluded that such reserves were inadequate and
that if such reserves were not made adequate by the
company, its capital and surplus accounts would be
impaired, which would authorize the Department to take
action under Burn’s Ind. Stat. Ann. §27-1-3-19. The
Department, thereupon, through the Attorney General of
Indiana, filed suit on August 5, 1974, asking for
“rehabilitation” under said §27-1-13-19.
On August 5, 1974, in response to the Department of
Insurance’ petition for rehabilitation this Court (Marion
County Superior Court Room Five) ordered the
Department of Insurance of the State of Indiana “to take
possession of the business and assets of UNAC and conduct
the business thereof and appoint such personnel as may be
necessary to rehabilitate UNAC as permitted by Burns’
Ind. Stats. Ann §27-1-4-2.”
The following entries represent a chronology of the
events which have occured subsequent to the order of
rehabilitation of August 5, 1974:
September 16, 1974, the Court issued a “blanket”
injunction which enjoined the commencement or
prosecution of any suit, action, or other proceeding on
behalf of, in the name of, or against UNAC or the
Rehabilitator. The order made specific reference to the B.
M. Honeycutt et. al. vs. UNAC action filed August 8, 1974 in
the U.S. District Court for the eastern district of Virginia,
and the Robert Schultz vs. UNAC action filed August 2,
1974 in the Circuit Court of Cook County, Illinois. The order
enjoined the taking of any further action with respect to
those two pending actions. Said injunction also ordered
that all persons desirous of instituting or prosecuting any
action or proceeding should do so as part of the
rehabilitation proceeding or, in the alternative, to seek
leave of “this” Court to do so elsewhere.
48
September 26, 1974, Robert Schultz on behalf of all
UNAC policyholders with RPR provisions in their policies
of insurance petitioned to intervene in the rehabilitation
proceedings.
January 9, 1975, B. M. Honeycutt’s petition to intervene
on behalf of himself and all other persons who purchased
PRR policies from UNAC was granted by court order.
January 23, 1975, The Airline Pilots Insurance Agency,
Inc. motion for leave to intervene was granted by court
order. The Airline Pilots Insurance Agency, Inc. is a
Florida corporation which was formed exclusively for the
purpose of soliciting and procuring the sale of insurance
policies with PRR provisions. Said Insurance Agency did
so on its capacity as the health assurance underwriter for
UNAC.
June 18, 1975, UNAC International was granted lezve to
intervene in the rehabilitation proceedings by court order.
July 15, 1975, Richard C. Lindop, Ralph K. Lindop,
Eilliam Aarmelin, Alfred Trafford, Samuel A. Croland,
Michael C. Bernstein and Robert Osler petition for leave to
intervene on behalf of themselves and as representative
parties of a “class” comprised of all the shareholders of
UNAC International capital stock, UNAC International
being the holding company and parent of UNAC.
September 15, 1975, Court order designating the
aforementioned persons as representative parties of all the
shareholders’ of UNAC International and authorizing the
same to maintain a class action on behalf of all the
shareholders on UNAC International was entered.
October 30, 1975, Court order entered declaring that the
B. M. Honeycutt et al. vs. UNAC action be maintained as a
class action pursuant to Indiana TR 23 for the benefit of the
class of “all policyholders who hold now or have held
contracts of insurance with UNAC”.
December 1, 1975, James A. Newpher filed a petition for
leave to intervene in his own behalf.
49
February 24, 1976, Newpher by written motion moves
the Court to convert his intervening petition into a class
action.
December 2, 1975, The Department of Insurance of the
State of Indiana ex. rel. UNAC, Robert Schultz and B. M.
Honeycutt, et. al. petitions the Court for leave to file suit
against certain officers and directors of UNAC.
December 2, 1975, the Department in its representative
capacity as Rehabilitator of UNAC files suit against
certain officers and directors of UNAC in Marion County
Superior Court Room Number Five.
December 12, 1975, the Court grants a motion for change
of venue in the action by the Department against the
officers and directors and by agreement of the parties
dated December 15, 1975, the matter is transferred to the
Superior Court of Hamilton County.
January 1, 1976, Cal-Lind Funding Corporation files a
petition for leave to intervene in the rehabilitation
proceedings.
March 8, 1976, the Court grants the Cal-Lind petition.
March 18, 1976, Cal-Lind files a complaint against
UNAC.
June 8, 1976, a motion to intervene is filed by certain
State Guaranty Associations and is granted by court order
on June 11, 1976.
February 6, 1976, The Department of Insurance as
Rehabilitator submits a summary of a proposed plan of
rehabilitation.
March 6, 1976, the Court orders “all parties presently
represented in the rehabilitation proceeding and Guaranty
Reserve Life Insurance Company” to file any alternative
rehabilitation plans for UNAC or to file any objections to
the Rehabilitator’s proposed Rehabilitation Plan for
UNAC on or before April 16, 1976. The Rehabilitator is
50
directed by said order to file and modifications to his
February 6, 1976, proposed plan on or before April 23,
1976. The order sets June 9, 1976, as the date for an initial
hearing on the respective merits of the proposed plans.
April 23, 1976, the Department of Rehabilitation files an
amended plan of rehabilitation.
June 9, 1976, a hearing on the evidence is held.
June 19, 1976, the Court tentatively approves the
Rehabilitator’s proposed plan of April 23, 1976, as the
proposed plan for the rehabilitation of UNAC. The Court in
said July 19, 1976 order sets October 14, 1976, as the date
for the final hearing on the tentative plan.
October 14, 1976, the Court convenes the final hearing on
the evidence. All evidence is complied by October 20, 1976
when evidence is heard concerning the Cal-Lind claim.
October 29, 1976 is set as the final date for the post-trial
briefs and the case is taken under advisement until
November 22, 1976.
The following entries represent those interested parties
who have submitted either an alternative plan to the
tentatively adopted plan of April 23, 1976, or those
interested parties who have submitted objections to the
April 23, 1976 Proposed Plan for the Rehabilitation of
UNAC. (note: the objections and alternative plans for the
most part refer to the February 6, 1976 proposed plan
which was amended in minor part by the April 23, 1976
plan and then, tentatively approved by the Court on July 19,
1976.)
1. The class of shareholders of UNAC International
submitted a proposed plan of rehabilitation on December 5,
1975. On February 23, 1976, this same representative class
submitted a pleading titled “Objections and Proposed
Amendments to the Proposed Plan of Rehabilitation filed
by the Department of Insurance on February 6, 1976.” On
April 15, 1976, the class of shareholders submitted an
51
addendum to their proposed plan of rehabilitation of
December 5, 1975.
2. By letter of February 13, 1976, the New Hampshire
Department of Insurance submitted a proposal suggesting
a way to resolve the State Guaranty Association—third
party claim dilemma.
3. April 12, 1976, H. Nelson Brown, Jr., Guy T.
Connelly, Robert I. Cummin, Lloyd P. Grissom, William
Harmelin, W. Foster Montgomery, Richard Moser, Selden
Sheffield, Alred H. Trafford and Herman L. Trautman
(the aforementioned persons are defendants in the
Hamilton County action) file objections to the Rehabilitation
plan of February 6, 1976.
4. April 14, 1976, Bruce Bowers and Carl J.
Rennekamp (defendants in the Hamilton County action)
file objections to the Rehabilitator’s proposed plan dated
February 6, 1976.
5. April 15, 1976, Ralph K. Lindop and Richard Lindop
(defendants in the Hamilton County action) file objections
to Rehabilitator’s proposed plan of February 6, 1976.
6. September 14, 1976, H. Nelson Brown, Jr., Guy T.
Connelly et al (defendants in the Hamilton County action)
file objections to the proposed rehabilitation plan
tentatively approved on July 19, 1976.
7. April 14, 1976, the class of policyholders represented
by B. M. Honeycutt, et. al. file objections to the
Rehabilitator’s proposed plan.
8. April 15, 1976, Guarantee Reserve Life Insurance
company files objections to the Rehabilitator’s proposed
plan.
9. June 9, 1972 [sic], Guarantee Life submits a brief in
support of it’s April 15, 1976 objections to the
Rehabilitator’s proposed plan.
10. July 13, 1976, Guarantee Life submits a brief in
reply to the opposition brief of the Rehabilitator.
52
11. April 15, 1976, Cal-Lind Funding Corporation file
objections to the Rehabilitator’s proposed plan.
12. April 19, 1976, Samuel J. Furlin, policyholder, filed
objection to the Rehabilitator’s proposed plan.
13. June 8, 1976, Indiana National Bank, as a secured
creditor of UNAC International, files objections to the
Rehabilitator’s proposed plan and a request to be heard at
the final hearing on said plan.
II. JURISDICTION
The statutory basis for the Court’s power to alter the
terms of the existing policies, affect the rights of creditors,
shareholders and agents, and bind nonconsenting parties,
flows from the Indiana insurance rehabilitation statute, IC
27-1-4-2, Burns §39-3402:
(a) An order to rehabilitate a domestic insurance
company shall direct the department to take possesion
of the property of such insurance company and to
conduct the business thereof and/or to take such steps
toward the removal of the causes and conditions which
have made such proceedings necessary as the court
shall direct.
(b) At any time the department shall deem that
further efforts to rehabilitate such insurance company
would be futile, it may apply to the court under this
article [§§ 39-3401—39-3430] for an order of
liquidation.
(c) The department, or any interested person, upon
due notice to the department, at any time, may apply
for an order terminating this proceeding and
permitting such insurance company to resume
possession of its property and the conduct of its
business, but, no such order shall be granted except
when, after a full hearing, the Court shall determine
that the purposes of the rehabilitation proceeding
have been accomplished.”
53
While the other sections of the statute spell out in some
detail the procedures to be followed in liquidating a
distressed insurance company, there is no corresponding
specificity concerning rehabilitation.
The Indiana rehabilitation statute directs the
Department of Insurance as a Rehabilitator of a distressed
insurance company “to take such steps toward the removal
of the causes and conditions which have made such
[rehabilitation] proceedings necessary as the court shall
direct.” IC 27-1-4-2(a), Burns §39-3402(a)
That once a Court in a rehabilitation or liquidation
proceeding acquires jurisdiction that such jurisdiction
vests in such a court to the exclusion of all other courts. The
rule is that when a court of competent jurisdiction has
taken possession of property through its officers, that
property is withdrawn from the jurisdiction of all other
courts, which, although having concurrent jurisdiction,
may not disturb that possession. The court which originally
acquires jurisdiction is competent to hear and determine
all questions respecting title, possession and control of the
property. This rule applies, even though the court, through
its receiver, has not secured actual physical possession of
the property of the debtor. Genecou vs. Wine (1940) 109 F.
2°265; American Cast Iron Pipe vs. Statesman Ins. Co.
(1972), 343 Supp. 860.
Courts regularly provide full faith and credit to
rehabilitation proceedings in other jurisdictions. Hutchins
vs. Pacific Mutual Life Insurance Co. of California, (1938)
97 F2° 58, is an example. Hutchins involved a suit by a
shareholder of the then reorganized insurance company
seeking to set aside the earlier entered rehabilitation plan
alleging that it was the product of a conspiracy between the
rehabilitator and the new company’s directors. The Court,
after noting that the Rehabilitator acts as a trustee for the
benefit of all creditors and interested parties, stated at
page 60 of the text of the opinion:
54
“Having acquired possession of the res by
appropriate action, the state court drew to itself the
power to determine, subject to review on appeal or
certiorari, all questions germane to the proceeding.
(court had earlier pointed out that under statute the
State court had assumed jurisdiction over the business
and assets of the insurance company) as said in Lion
Bonding and Surety Company vs. Karatz, supra, (page
486) ‘If the legality of the state court’s action was to be
questioned, it could be done only by laying the proper
foundation through appropriate proceedings in that
court’. The way was open to appellant, by intervention
in the State court, to be heard on all matters sought to
be litigated here. These questions have been as
effectively withdrawn from the jurisdiction of the
lower federal courts as has the property of the
insurance company itself.”
Podway vs. Pacific Mutual Life Insurance Co. of California
(1940) 42 F.Supp. 569, is a 7th Circuit Case which is
applicable. Podway involved a plaintiff as a holder of two
noncancellable disability policies who was represented and
protected through class representation in California
proceedings, resulting in orders made by the Superior
Court of Los Angeles County approving the rehabilitation
and reinsurance plan and directing the insurance
commissioner to transfer and assign the incurer’s assets to
the new company.
Full faith and credit was required to be given to those
orders by the federal district court in Wisconsin and the
plaintiff who took no action to accept or reject the
reinsurance and assumption of policies by the new
company in accordance with the terms of the plan was
bound by the California proceedings even though he did not
personally appear. The court in so holding observed thr@:
the California proceedings were valid and constitutional in
that there was jurisdiction and procedural due process had
been met, ie., notice and opportunity to be heard had been
given to all interested parties. The plaintiff even though not
55
present had been represented in said proceedings through
virtual or class representation and thusly full faith and
credit was given to the orders and judgement of the
California courts.
The Rehabilitation Court is bound to insure that the
provisions of the Plan of Rehabilitation are carried out. The
Court is also bound to insure that the spirit of the plan as it
relates to the successful rehabilitation of the company is
followed.
Where the insurance company makes an application for
an order to terminate the conservatorship it must show that
the grounds on which the company was taken over by the
insurance commissioner have been removed, and the
burden of proof in this respect, as well as the burden of
proving that the company can properly resume title and
possession is on the company. Whether the present
circumstances justify termination of the concervatorship is
a matter within the sound discretion of the trial court. The
determination of the trial court on competent testimony
without abuse of discretion that the control of the business
of the insurance company should be returned to the
company by the conservator is binding in the courts review.
(Caminetti vs. Prudence Mut. Life 146 P2°15)
In Caminetti vs. Imperial Mut Life 139 P 2° 681 (1943),
the Court noted (at page 690)
“This (conservatorship or rehabilitation) being a
special proceeding, the jurisdiction of the Court is
limited by the terms and conditions of the statute
under which the proceeding is instituted....There
was but one question before the court and that one was
as to the right of appellant commissioner to operate
respondent’s insurance business, or whether the
control and operation of such business should be
withdrawn from the commissioner and restored to
respondent. When by its judgement the court decided
this issue in favor of respondent, it completely and
effectively exhausted the court’s jurisdiction.
I.C. 27-1-4-2(c)
“The department, or any interested person, upon due
notice to the department, at any time, may apply for an
order terminating this proceeding and permitting
such insurance company to resume possession of its
property and the conduct of its business, but, no such
order shall be granted except when, after a full
hearing, the Court shall determine that the purpose of
the rehabilitation proceeding have been accomplished.”
/s/ Michael T. Dugan, II, Judge
Marion Superior Court, No. 5
Dated: November 22, 1976
57
PLAN OF REHABILITATION
FOR
UNDERWRITERS NATIONAL ASSURANCE COMP—
I.
ANY (“UNAC’)
Summary of the Rehabilitation Plan.
A. Basic Coverage. All policyowners will be offered
continuation of basic coverage subject to the changes
specified in Part III. It is anticipated that premium
increases will be necessary on accident and health and
disability policies in the future, including those non-
cancellable policies modified to be guaranteed
renewable. No change is anticipated on life insurance
policies.
B. Return of Premium Rider (“RPR”) Benefits. All RPR
benefits will be terminated. RPR premiums received
by UNAC on or after August 5, 1974, will be refunded.
Policyowners with RPR at August 4, 1974, would
receive a cash payment equal to 15.68% of the
additional premium paid for the RPR received
through August 4, 1974. See Parts III and IV.
C. Liquidated Cash Value Payments. As set forth in Part
V, all policyowners will have an option to receive a
liquidated cash value payment in lieu of accepting the
changed policy provisions. See Part III also.
D. Policyowners Who Accepted the July 9, 1974, Offer. The
policyowners who accepted the July 9, 1974, offer and
terminated basic coverage will be offered a
reinstatement of basic coverages as specified in Part
IV(C).
E. Agents’ Commissions. Agents’ commission agreement
will be modified as specified in Part VII.
EXHIBIT A
58
. Structural Changes in UNAC. Asset forth in Part
VIII, UNAC’s common stock will be placed in a
voting trust to provide for representation of
policyowner interests on UNAC’s Board of
Directors. The Department of Insurance may
maintain a representative at UNAC’s office for
two years or such additional period as the
Department deems advisable, and new manage-
ment will be selected.
. Additional Policy Benefits. As set forth in Part
XI, UNAC will attain a minimum initial capital
and surplus of $2,500,000 through a reduction in
liabilities to policyowners. A corresponding
policy benefit will be created for the RPR
policyowners as of August 4, 1974, conditionally
obligating UNAC to make return of premium
payments aggregating $2,500,000, plus interest,
to such policyowners within ten years.
. Participating Policies. To the extent UNAC
generates profits from the basic coverage as
restructured, those profits will be returned to the
policyowners in the form of policy dividends as set
forth in Part III(I).
Third Party Recoveries. As described in Part IX,
any recovery from others as a result of legal action
or claims by the Department or UNAC after
rehabilitation will inure to the benefit of the RPR
policyowners as of August 4, 1974. See Part X(C)
also.
. Contingent Liabilities. The Rehabilitation Plan
resolves certain liabilities of UNAC as follows:
UNAC purchased certain policies, principally
RPR policies, from Guarantee Reserve Life
Insurance Company in 1968. UNAC will have no
obligation to Guarantee. Cal-Lind Funding
Corporation has made claims against UNAC
II.
59
based upon three agreements between Cal-Lind
or its subsidiary and UNAC. UNAC will have
liability to Cal-Lind or its subsidiary. UNAC will
have no liability to any guaranty association
which itself has obligations to UNAC’s policy-
owners, except as set forth in Part X(C). UNAC
will have no liability to any other party whose
rights or claims are not dealt with by the
Rehabilitation Plan and are not recognized by the
Department as being valid prior to the effective
date of the Rehabilitation Plan. See Part X.
K. Settlement of Litigation and Claims. As set forth
in Part XIII, in consideration of the provisions of
the Rehabilitation Plan, all claims against UNAC
by policyowners will be compromised and
dismissed, and all persons will be discharged
from any liability for acts during the rehabilitation
of UNAC.
Definitions.
The following terms have the following meanings as
used in this Rehabilitation Plan.
Department: The Department of Insurance of the
State of Indiana or the Commissioner of Insurance of
the State of Indiana, as Rehabilitator of UNAC under
the Indiana Insurance Laws.
UNAC: Underwriters National Assurance Company.
International: UNAC International Corporation, the
holding company owning all the stock of UNAC.
Rehabilitation Court: The Superior Court of Marion
County, Indiana, Room No. 5, where the UNAC
rehabilitation proceeding is pending as Cause No.
$574-851.
Return of Premium Rider (“RPR”): A rider attached
to most of the policies issued by UNAC, promising
60
return of a portion of the paid premiums if certain
conditions are met, generally that no claims under
the terms of UNAC’s policies are asserted under the
basic coverage for a period of ten years in excess of a
stated percentage of premiums.
Basic Coverage: All insurance coverage except any
return of premium rider.
Non-Cancellable Policy: An accident and health
policy of insurance containing a provision that the
policy may not be cancelled or amended in any
respect (including adjustments to premiums) except
for non-payment of premium.
Guaranteed Renewable Policy: An accident and
health policy of insurance containing a provision that
the policy may not be cancelled in any respect except
for nonpayment of premium; however, UNAC has
the right from time to time to modify the scale of
renewal premium rates based upon experience by
class.
Active Claim: An existing claim under any contract
of insurance issued by UNAC in which benefits are
currently being paid or are currently payable.
RPR Restart Date: That date when the 10-year accrual
period in the return of premium rider starts over
again. A restart may be effected in any of the
following ways:
1. Lapse and subsequent reinstatement of the policy
with a break in coverage during which no
premiums are collected.
2. Inception date of a new 10-year accrual period
after the completion of a previous 10-year accrual
period.
3. Inception of a new 10-year period when claim
benefits paid exceed the claim percentage
allowance in the return of premium rider.
Il.
61
Commissions: Any fees or compensation paid to an
agent, manager, supervisor, or general agent in the
form of actual commissions, over-rides, or service
fees.
Options to Policyowners.
UNAC has written a variety of accident and health
coverages and life coverages during the period it has
been authorized to write insurance. Principal lines
written include the following: (1) Life Insurance—
UNAC has offered the usual portfolio of life
insurance coverages written through individual
agents and brokers. UNAC’s principal life product in
terms of sales has been a flexible premium life policy
offering a combination of term insurance and an
accumulation fund used to purchase paid-up life
insurance at the insured’s 65th birthday; (2)
Guaranteed Renewable Medical Expense and
Accident and Health Products—UNAC has offered
hospital, medical and surgical policies providing
scheduled indemnities for various kinds of medical
care, principally hospital confinement. Under
UNAC’s major medical coverages, the policyowner is
reimbursed for eligible medical expenses after
satisfaction of a deductible; (3) Disability Products—
UNAC has written a variety of disability coverages
over the years with some business written on a
guaranteed renewable premium basis. Most
disability business, however, has been written on a
non-cancellable basis. Disability coverages provide a
monthly benefit payable (after satisfaction of a
waiting period) for the earlier of the period specified
in the contract or the date the insured recovers from
his disability.
Specific options will be available to each policyowner
depending on the type of basic coverage held on
September 30, 1975. If a policyowner fails to make an
62
election, he will be deemed to have elected Option 2.
For RPR policyowners, these options will! be in
addition to the refund of all RPR premiums paid
after August 4, 1974.
THE ELECTION OF OPTION 1 BY A POLICY-
OWNER WILL CONSTITUTE AN ABANDON-
MENT OF ANY FURTHER RIGHTS OR CLAIMS
SUCH POLICYOWNER MIGHT HAVE UNDER
HIS POLICY OR OTHERWISE, EXCEPT AS
PROVIDED IN PART IX, THIRD PARTY
RECOVERIES, AND AS PROVIDED IN PART
XI, ADDITIONAL BENEFITS TO RPR POLICY-
OWNERS. POLICYOWNERS WITH RPR WHO
ELECT OR HAVE BEEN DEEMED TO HAVE
ELECTED OPTION 2 WILL BE CONSIDERED
TO HAVE WAIVED ANY RIGHTS OR CLAIMS
TO RPR BENEFITS THEY MIGHT BE ENTITLED
TO ASSERT AGAINST THE GUARANTY
ASSOCIATIONS IN THOSE STATES HAVING
SUCH GUARANTY ASSOCIATIONS.
The options set out below do not include an increase in
premiums. However, in changing non-cancellable
policies to guaranteed renewable policies, UNAC
will have the right, subject to any required
regulatory approvals, to increase premiums in the
future.
A. Non-Cancellable Disability Policyowners with
RPR.
Option 1. Liquidated cash value, determined as
of September 30, 1975;
or
Option 2. Receive RPR liquidated cash value and
retain basic coverage as modified to be
a guaranteed renewable policy.
63
. Non-Cancellable Disability Policyowners without
RPR.
Option 1. Liquidated cash value, determined as
of September 30, 1975;
or
Option 2. Retain basic coverage as modified to be
a guaranteed renewable policy.
. Guaranteed Renewable Disability Policyowners
with RPR.
Option 1. Liquidated cash value, determined as
of September 30, 1975;
or
Option 2. Retain basic coverage, as is, and receive
RPR liquidated cash value.
. Guaranteed Renewable Disability Policyowners
without RPR.
Option 1. Liquidated cash value, determined as
of September 30, 1975;
or
Option 2. Retain basic coverage, as is.
. Guaranteed Renewable Medical Expense Policy-
owners with RPR.
Option 1. Liquidated cash value, determined as
of September 30, 1975;
or
Option 2. Retain basic coverage, as is, and receive
RPR liquidated cash value.
. Guaranteed Renewable Medical Expense Policy-
owners without RPR.
Option 1. Liquidated cash value, determined as
of September 30, 1975;
or
H.
s
64
Option 2. Retain basic coverage, as is.
All other Accident and Health Policyowners
without RPR.
Option 1. Liquidated cash value, determined as
of September 30, 1975;
or
Option 2. Retain basic coverage as is.
All Life Insurance Contracts.
No options available, coverage remains as is.
Non-Cancellable Policyowners’ Participation in
Future Underwriting Profits.
1. Non-cancellable policyowners who elect to
retain basic coverage with UNAC as modified
to be guaranteed renewable policies will
participa‘e in future underwriting profits
from the asic coverage, if any, if UNAC in
the forrn of annual policyowner dividends.
2. The future underwriting profits will be
defined as those amounts earned in excess of
expenses, claims, and reserve requirements
on premiums collected from all non-
cancellable policyowners who elected to
retain basic coverage with UNAC. However,
UNAC will be under no obligation to pay
annual dividends in excess of an amount equal
to any premium increases subsequently
imposed. To the extent there are additional
profits, those profits will be used to retire the
Limited RPR in Part XI.
3. Only those policyowners who hold contracts in
force at the time an annual policyowner
dividend, if any, is declared will participate in
such annual policyowner dividends.
65
4. Annual dividends, if any, will be paid in the
form of a credit toward future premiums due,
unless the policyowner requests in writing
that the dividend be paid in cash.
IV. RPR Benefits.
A. Refund of RPR Premiums Since Rehabilitation.
All RPR premiums collected on or after August 5,
1974, will be refunded in full to the policyowner
who has paid the premium, including those who
have lapsed or surrendered their policy
subsequent to August 4, 1974.
B. Cash Payment for RPR Benefit Prior to
Rehabilitation.
A calculation will be made of the RPR premiums
paid from the effective date of the RPR or the
latest RPR Restart Date through August 4, 1974,
on each policy with an RPR in force on August 4,
1974. Each policyowner will receive a payment of
15.68% of the additional premium paid for the
RPR paid to that date. The payment to any
policyowner who elected a refund of RPR
premium under UNAC’s buyout offer of July 9,
1974, exceeded the amount payable under this
provision. Accordingly, those policyowners will
receive no payment under this provisions.
C. Policyowners Affected by UNAC “Buy-Out”
Proposal of July 9, 1974.
1. Any policyowner who terminated his basic
coverage as a result of the buy-out offer made
by UNAC on July 9, 1974, will be given the
opportunity to reinstate his basic coverage as
modified to be a guaranteed renewable policy
under the following guidelines:
(a) Reinstatement will be on a current date
basis, in accordance with the reinstate-
66
ment provision of the policy and without
collection of back premiums.
(b) The applicant must submit a personal
statement of good health and must be
employed on a full-time basis in his
occupation.
(c) The applicant must respond to the
reinstatement offer within 30 days.
No offer will be made to reinstate coverage on
the RPR, nor will any reinstated or reissued
contract contain an RPR.
Any RPR policyowner who accepted the July
9, 1974, offer of UNAC and desires
reinstatement of coverage must repay to
UNAC the excess of the amount received by
him pursuant to the offer over the amount to
which he would be entitled under Part IV(B)
if payments under Part IV(B) were made to
persons accepting the July 9, 1974, offer.
V. Method of Determining Liquidated Cash Value.
A. The figures listed below are based upon financial
data at September 30, 1975. Liquidated cash
values will be computed as follows:
Assets at Book Value per
UNAC's September 30, 1975,
Financial Statements $31,171,988
Adjustments to Assets
(a) Policy Loans on Life
Policies Netted by
Reduction
of Life Policy Liabilities $ 960,974
(b) Litigation Expenses 1,000,000 (1,960,974)
Liability Items
(a) Advance Premiums $ 99,422
(b) Premium Deposit Funds 2,561
(c) Commissions to Agents
Due or Accrued 227,471
67
(d) General Expenses, Taxes,
etc. Due or Accured 220,946
(e) Unearned Investment
Income and Unamortized
Discount of
Interest Sold 683,590
(f) Security Fluctuation
Reserve 310,610 (1,544,600)
Policyowner Liability Items
(a) Active Claims Incurred
through September 30,
1975 $13,590,116
(b) Refund of RPR premiums
from August 5, 1974
through September
30, 1975 2,841,212
(c) Statutory Reserves for
Continuation of Basic
Coverage at September
30, 1975 7,006,819
(d) Capital and Surplus for
Rehabilitated Company ___ 2,500,000 (25,938,147)
Net Assets at Book Value
Available for Payment to
RPR policyowners 1 267
Asset Market Value Adjustment
Factor
(a) Market Value of Assets
at September 30, 1975 $25,542,525
(b) Book Value of Assets
at September 30,1975 31,171,988
(c) Adjustment factor
(a) ¢ (b) = 81.94%
Market Value of Assets
Available for payment to
RPR policyowners
Line 5 x 6c $ 1,416,142
RPR Premiums Paid through
August 4, 1974, on policies
in force at August 5, 1974
(converted to U.S. dollars) 9,031,622
Liquidation Percentage to
RPR policyowners at August
4, 1974 Line 7-8 15.68%
VI.
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B. The liquidated cash value for each individual
policy is to be determined as follows:
1.
Separate all policies in force at September 30,
1975, into basic coverage form and calendar
year of issue.
For each of the groups determine the total
active life reserve as of September 30, 1975,
and the annual premium excluding RPR
premiums for the policy year ending next
following September 30, 1975.
The total liquidated cash value for each group
will be the total active life reserve for that
group, multiplied by the asset market value
adjustment factor of 81.94%.
For each of the groups determine the
liquidation premium percentage which is the
total liquidated cash value for each group
divided by the total annual premiums for that
group.
For each policy the liquidated cash value
equals the liquidation premium percentage in
paragraph 4 determined for that group to
which that policy belongs multiplied by the
annual premium for the current year
excluding RPR premiums paid.
For RPR benefits, the liquidated cash value
will be RPR premiums paid to UNAC
subsequent to August 4, 1974, plus an amount
equal to 15.68% of the RPR premiums paid
through August 4, 1974.
Disposition of Policy Claims for Accident or Health
Benefits.
Claim provisions concerning basic coverage are not
affected by the Rehabilitation Plan. Once the
69
policyowner elects to receive the liquidated cash
value of his policy, such election will be irrevocable
and UNAC will be under no further obligation for
claim liability. If no election has been made as of the
effective date of the Rehabilitation Plan, no claim
will be honored until such election has been made.
VII. Agent’s Commissions.
A. Current UNAC agent and agency contracts vary
substantially with respect to commission rates
and vesting privileges. Certain provisions,
however, are applicable to all contracts:
1.
Each agent or agency contract requires a
specified minimum of in force, annualized
premium for continued commission payments.
Each contract provides for the payment of
service fees of 3% to 5% after ten years of policy
premium payments.
Each contract has had a specific vesting
privilege for continuing commission payments
based on in force annualized premium and
length of active service as an agent.
B. The following changes, applicable to commission
payments after the effective date of the
Rehabilitation Plan, as determined by the
Rehabilitation Court, will result in substantial
savings for UNAC:
1. All commissions payable will be limited to the
first ten years of premium payments unless
vesting privileges are terminated earlier
based on the the individual agency contract.
No commission will be paid on any future
premium increases on individual policies.
Future premium increases on individual
policies will not be credited to an agent’s in
70
force account for purposes of determining his
qualification under Part A(1) above.
VIII. Structural Changes in UNAC.
IX.
A. The total stock of UNAC is presently held by
International. As long as the Limited RPR
obligations described in Part XI are outstanding,
all of UNAC’s common shares will be placed in a
voting trust in the form attached as Exhibit B to
the Order Approving Plan of Rehabilitation and
Settlement of Claims and Litigation of the
Rehabilitation Court.
B. The Department may maintain a representative
at UNAC’s office for two years or such additional
period as the Department deems advisable. That
representative will have the right to attend all
Board and Committee meetings and will receive
advance notice of the agenda of those meetings.
C. New management will be selected consistent with
guidelines to be promulgated by the Department.
No person active in UNAC’s management prior to
rehabilitation will be employed except those
persons who have been retained to date by the
Department who may, but are not required to, be
retained in the future. Specifically, any
employment contract entered into between
UNAC and any of its officers, directors and
employees prior to rehabilitation shall be null,
void and of no effect.
Third Party Recoveries.
On December 2, 1975, the Department as
Rehabilitator of UNAC filed a complaint in the
Superior Court of Marion County, Indiana, against
certain defendants for the enforcement of rights
vested in UNAC. The defendants include the officers
and directors of UNAC from 1969 through 1974;
71
Charles M. Beardsley and Booke and Company,
former consulting actuaries of UNAC; and Ernst and
Ernst, former auditors of UNAC. The theories of the
complaint are breach of contract and negligence.
Also filing similar claims against the defendants
were certain UNAC policyowners on their own
behalf and on behalf of a class consisting of all
policyowners who hold now or have held contracts of
insurance with INAC. The venue of the lawsuit was
changed to the Superior Court of Hamilton County,
Indiana.
Any recovery from the defendants in the lawsuit now
pending in the Superior Court of Hamilton County or
any other recovery as aresult of legal action or claims
by the Department or UNAC after rehabilitation as
based on liability incurred for acts or omissions prior
to rehabilitation shall inure to the benefit of RPR
policyowners as of August 4, 1974, in proportion to
their payments under Part IV(B). UNAC will
maintain a list of those policyowners until all
litigation has been concluded and all recoveries, less
litigation costs, have been distributed to the
policyo''ners.
Neither the lawsuit not pending in the Superior
Court of Hamilton County nor any other legal action
or claims by the Department or UNAC after
rehabilitation as based on liability incurred for acts
or omissions prior to rehabilitation shall be settled or
dismissed without the prior written approval of the
Department and the Rehabilitation Court.
Contingent Liabilities.
A. Guarantee Reserve Life Insurance Company.
UNAC purchased certain policies, principally
RPR policies, from Guarantee Reserve Life
Insurance Company in 1968. Guarantee contends
72
that it has no further liability to those
policyowners. However, should there be any such
liability, Guarantee has indicated that it seeks
indemnity from UNAC. Guarantee also asserts
rights to indemnity for its cost of defense. These
policies are hereby treated in the same manner as
those policies issued directly by UNAC, both
classes of which have been represented by counsel
herein. UNAC shall have no further obligation or
liability to Guarantee.
. Cal-Lind Funding Corporation.
Cal-Lind Funding Corporation has made two
claims against UNAC based on three agreements
between UNAC and Cal-Lind of California, a
subsidiary of Cal-Lind Funding Corporation. Cal-
Lind claims unearned premiums in the sum of
$61,725.09 and loans in default in the sum of
$86,845.97 stemming from the agreements. The
Department denies the claims, asserting invalid
execution and that UNAC did not have legal
authority to make such agreement. The claims
and defenses were tried by the Court. The Court
finds:
1. All transactions and dealings between Cal-
Lind, or its subsidiary and UNAC were fair,
reasonable, beneficial to UNAC, and its
agents, employees and policyholders, and
were fully and publicly disclosed.
2. There was no unlawful self-dealing between
Cal-Lind and UNAC with respect to these
transactions.
3. Pursuant to contract, loans are in default
resulting in unearned premiums being owned
by UNAC toCal-Lind and its subsidiary in the
sum of $61,724.00.
73
4. Pursuant tocontract, loans are in default from
employees and agents of UNAC, resulting in
guarantees being owed by UNAC to Cal-Lind
and it’s subsidiary in the sum of $80,589.00.
5. The service agreement between UNAC and
Cal-Lind was fair and reasonable and UNAC
is not entitled to a set-off in these proceedings.
Therefore, Cal-Lind Funding Corporation is
granted judgment against UNAC in the
amount of $142,313, each party to bear its own
costs; and further that execution of said
judgment is hereby abated until January 1,
1978; or as the Department and UNAC may
deem payable in part or in full prior to that
date.
C. Guaranty Associations.
On August 4, 1974, UNAC was licensed to do
business in states which either had at that time or
have subsequently enacted legislation providing
for some form of life and/or health insurance
guaranty association. While the legislation in
each state differs particularly as to its
applicability, the general purpose of such
legislation is to protect the state’s policyowners,
subject to certain limitations, against failure in
performance of contractual obligations due tothe
impairment of the insurer. To provide that
protection, an association of insurers is created to
ensure the payment of policy benefits and of
continuation of coverages, and members of the
association are subject to assessment to provide
funds to carry out that purpose.
The Rehabilitator understands that the guaranty
associations in the eight states of Connecticut,
Kansas, Montana, Nevada, New Hampshire,
North Carolina, South Carolina and Vermont
74
may have certain obligations to UNAC policy-
owners residing in their respective states on
August 5, 1974. To the extent that any guaranty
association as a result of the rehabilitation
proceeding, makes a payment to or on behalf of a
UNAC policyowner, that policyowner’s rights
under the UNAC policy shall be deemed to be
assigned to the guaranty association until such
time as the guaranty association has been fully
reimbursed. UNAC 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 UNAC each year
until fully reimbursed a portion of UNAC’s
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 UNAC on August 5,
1974.
D. Other Contingent Liabilities.
1. Airline Pilots Insurance Agency, Inc., a
former sales agent of UNAC, has been
granted leave to intervene in the rehabilitation
proceeding. Thomas R. McGeoghegan, on
behalf of himself and all other managers and
supervisors and agents of UNAC, has sought
leave to intervene in the rehabilitation
75
proceeding. Part VII. of the Rehabilitation
Plan provides for agents’ commissions and
UNAC shall have no additional liability to
Airline Pilots Insurance Agency, Inc.,
Thomas R. McGeoghegan, or any other
manager, supervisor or agent of UNAC, other
than the liability described in Part VII.
2. The Rehabilitation Plan deals with the rights
and claims of various parties interested in
UNAC. Those parties shall have no rights or
claims against UNAC other than as provided
by the Rehabilitation Plan. As to other
parties, if any, whose rights or claims are not
recognized by the Department as being valid
prior to the effective date of the Rehabilitation
Plan, UNAC shall have no liability to said
parties. The Department recognizes UNAC’s
liability to pay for goods and services
furnished to UNAC in the course of its
business and the rehabilitation.
Additional Benefits to RPR Policyowners.
UNAC is a stock company, all of whose shares are
owned by International. An initial capital and
surplus of $2,500,000 are necessary to give the
rehabilitated company an adequate reserve against
unforseen contingencies and to give reasonable
assurance of UNAC’s ability to meet its obligations in
the future. No infusion of new capital is believed
presently available. Accordingly, the only source of
the necessary capital and surplus is reduction of
liabilities which, unless accompanied by the
extension of a corresponding additional policy
benefit, might benefit the shareholders at the
expense of the policyowners.
UNAC shall create for the members of the class of
‘RPR policyowners as of August 4, 1974, an additional
76
policy benefit in the form of a limited return of
premium rider (“Limited RPR”) in addition to the
cash payments described in Part IV. The Limited
RPR obligates UNAC to make payments to such
policyowners in the aggregate principal amount of
$2,500,000, within ten years, together with interest at
the rate of 6% per annum. Limited RPR payments
will be required upon the expiration of ten years or at
any time UNAC has capital and surplus of
$4,000,000, but no payment will be made which
would reduce the capital and surplus in UNAC below
$2,500,000. The payment of the Limited RPR is
expected to be dependent on UNAC’s ability to
generate profits. However, because International
will be obliged at the end of the 10-year period to pay
UNAC the amount of any Limited RPR payments not
yet made, with interest, there also is a possibility of
future borrowing or raising of capital by International in
order to infuse new capital into UNAC to permit it to
make the Limited RPR payments. Alternatively, all
or a portion of the pledged UNAC stock might be sold
in order to satisfy the Limited RPR benefits. If all
Limited RPR payments are not made or otherwise
satisfied at the expiration of the 10-year period,
UNAC is obligated to cause the formation of a mutual
insurance company and merge itself into the mutual
company with the voting trustees obligated to vote
for the merger.
UNAC shall request a “no action” letter from the
Securities and Exchange Commission to the effect
that the creation of the Limited RPR is not a
transaction subject to registration under the
Securities Act of 1933, and the views of the Securities
Commissioners of the several states shall also be
solicited. If required and feasible, the Limited RPR
shall be registered as a security in UNAC’s
jurisdictions, if any, where it is required.
XII.
XIII.
77
Foreign Jurisdictions.
UNAC has significant numbers of policyowners in
Canada and the United Kingdom. "he Department
will submit the Rehabilitation Flan to foreign
regulatory authorities, or take such other steps as the
Department deems to be in the best interests of
UNAC.
Settlement of Litigation.
A. Description of Pending Litigation
Three policyowner class action lawsuits and
one individual policyowner lawsuit, which are
similar but not identical, have been filed
against UNAC and stayed by the respective
courts having jurisdiction. These are the
following:
Robert Schultz and All Members of the Class v.
Underwriters National Assurawe Company,
Cause No. 74CH 4659 in the Circuit Court of
Cook County, Illinois, County Department,
Chancery Division, subsequently removed to
federal court, where it is now pending as Robert
Schultz v. Underwriters National Assurance
Company, Civil Action No. 74 © 2550 in the
United States District Court for the Northern
District of Il'inois, Eastern Division (herein-
after referred to as the “Chicago case”).
B. M. Honeycutt, et al. v. Underwriters
National Assurance Company, Civil Action
No. 482-74-A in the United States District
Court for the Eastern District of Virginia
(hereinafter referred to as the “Virginia case”).
Charles R. Hall, D.D.S., Richard R. Cannon,
D.D.S., P.A. v. Underwriters National
Assurance Company, Civil Action No. 75-7-900
in the Circuit Court of Madson County,
78
Alabama, subsequently removed to federal
court, where it is now pending under the same
title as Civil Action No. 75-L-1589-NE in the
United States District Court for the Northern
District of Alabama, Northeastern Division
(hereinafter referred to as the “Alabama
case”).
John Warren Meyer v. Guarantee Reserve Life
Insurance Company and Underwriters National
Assurance Company, Cause No. 786-532 in the
Superior Court of King County, Washington
(hereinafter referred to as the “Washington
case”).
The Chicago and Virginia cases are action on
behalf of classes consisting of some or all of the
policyowners whose policies include an RPR. The
Chicago case seeks an injunction against
termination of certain insurance policy provisions,
a constructive trust on the assets of UNAC, and
punitive damages in the amount of $500,000. The
Virginia case seeks damages in the amount of
$180 million, punitive damages in the amount of
$120 million, specific performance of policy
provisions, other equitable relief, costs and
attorneys’ fees. Both cases, on the Department's
motions, were stayed by the respective federal
courts in which they are pending. The plaintiffs in
both cases have, however, been granted leave to
intervene in the Indiana rehabilitation proceeding.
The class representative in the Chicago case has
filed a complaint in the rehabilitation proceeding
generally corresponding to the claim initially
asserted. The class representatives in the
Virginia case have not filed a complaint in the
rehabilitation proceeding. The Chicago and
Virginia plaintiffs have been conditionally
determined by the Rehabilitation Court to
79
represent as intervenors the class of all UNAC
present and former policyowners.
The Alabama case purports to be an action on
behalf of a class consisting of all policyowners in
Madison County, Alabama, whose policies
include an RPR. Compensatory damages are
sought, although the actual amount of those
damages was not stated in the complaint. On the
Department’s motion, the Alabama case was
stayed by the federal court and the Alabama
plaintiffs have not sought to intervene in the
rehabilitation proceeding.
The Washington case is an action by a holder of
two policies with RPRs that were originally
issued by tsuarantee Reserve Life Insurance
Company and assumed by UNAC in 1968. The
trial court entered judgment in favor of the
plaintiff and against Guarantee for $6,317.88, the
amount found due under the RPRs. The trial
court stayed all proceedings against UNAC by
the plaintiff and by Guarantee. The Washington
plaintiff has not sought to intervene in the
rehabilitation proceeding.
On December 1, 1975, James A. Newpher
(“Newpher”), a policyowner of UNAC, filed a
petition for intervention in the rehabilitation
proceeding asserting that his interests are not
represented by the Chicago and Virginia class
plaintiffs, stating that he does not desire to be
represented by them, and requesting that an
investigation be conducted of certain matters in
the rehabilitation proceeding. Newpher also
asked the Rehabilitation Court to grant various
alternative forms of injunctive and monetary
relief for the alleged wrongful acts of the
Department and others.
80
B. Settlement of Asserted and Unasserted Claims.
In consiceration of the provisions of the
Rehabilita:ion Plan, the claims of the UNAC
policyowner class representatives are compromised
and dismissed. While the Alabama class
plaintiffs and the Washington plaintiff have not
filed any claim against UNAC in the rehabilitation
proceeding, those plaintiffs are members of the
policyowner class represented by the intervening
Chicago and Virginia class plaintiffs. Whether or
not any policyowner is a member of a class
pursuant to Trial Rule 23, in order to fix and
determine UNAC’s obligations after rehabilitation,
all claims of UNAC policyowners against UNAC
are compromised and dismissed, including the
claims of Newpher. The claims of Newpher or any
other policyowner against the Department are
compromised and dismissed and the Department
and its personnel are discharged from any
liability for their acts incident to the rehabilitation of
UNAC.
Subsequent to the filing of the Department’s
initial Proposed Rehabilitation Plan for UNAC,
certain of the defendants in the lawsuit described
in Part IX filed “counterclaims” against UNAC
or the Department as Rehabilitator of UNAC for
certain actions taken in connection with the
rehabilitation of UNAC. Also, International filed
suit against the Department as Rehabilitator of
UNAC for certain actions taken in connection
with the rehabilitation of UNAC. These
contentions, to the extent they may be raised by
the persons asserting them or any other person, to
the extent they are cognizable by any court, and to
the extent they concern actions taken in
connection with the rehabilitation of UNAC, are
81
properly determined by the Rehabilitation Court.
The Department and its agents and employees
are discharged from any liability for such claims.
* * *
[Exhibit B omitted in printing]
83
10.
[Notices In The Superior Court of
Marion County, Indiana, Room No. 5]
[Indiana Department of Insurance Letterhead]
To: All Interested Parties
Re: Underwriters National Assurance Company
Rehabilitation
This is to advise you that Judge Michael T. Dugan, II, of
the Superior Court of Marion County, Indiana, Room No. 5,
issued a final Order regarding the rehabilitation of
Underwriters National Assurance Company on November
22, 1976. The final Order approved a Plan of Rehabilitation
generally along the lines of the plan sent you earlier this
year, with certain variations. The chief variations are: (1)
UNAC is ordered to pay in full the claims of creditor Cal-
Lind Funding Corporation, (2) the Court will appoint from
five to eleven people (Trustees) to represent the diverse
grours and interests involved in the rehabilitation of the
company and to select a Board of Directors, and (3) the
Order acknowledged that certain assets held in Canada
and the United Kingdom, will not be available at this time
for distribution to policyowners until after, if at all, a
clarification is obtained from the United Kingdom and
Canadian authorities, and the Order directs UNAC to
exclude such assets from UNAC’s calculations in
determining the amount of distribution to policyowners.
The Court will appoint the Trustees on or before
December 22, 1976. The Trustees will select a Board of
Directors on or before January 22, 1977. The company will
be released from rehabilitation after the new Board of
Directors is appointed, allowing the company to resume
business operations. The Board of Directors will then select
people to manage the ongoing operations of the company.
The Order states that the refunds to policyowners provided
by the Plan are to be made by management after it is
84
selected. No time is established for this, but we anticipate it
will be well into 1977 before the future management can do
all those things necessary to make these refunds. When new
management is employed, it will send policyowners: (1) a
copy of the final Order and Plan, (2) a data sheet showing
their options, liquidated values, RPR refunds, etc., and(3)a
form for policyowners to select their desired option under
the Plan.
Under the Plan all RPR benefits are to be terminated and
refunds made of all RPR premiums collected since August
5, 1974. No further RPR premiums are to be paid by
policyowners. All RPR policyowners should be advised that
on or before ten years you are entitled to receive your pro
rata share of the $2,500,000.00 Limited RPR provided by
the Plan, plus 6% interest per annum until! paid. If the
Limited RPR obligation is not paid when due, the company
will be mutualized for the benefit of policyowners. You are
also entitled to a pro rata share of any future recovery, if
any, from the pending litigation against third parties anda
refund of between approximately 7% and approximately
15-%% of the premiums paid for the RPR prior to August 4,
1974. The percentage and timing of the refund will depend
on resolution of the situation in the United Kingdom and
Canada. Those non-cancellable policyowners who continue
to keep insurance on a guaranteed renewable basis with the
company are entitled to receive dividends from the
company from profits, if any, earned on this business in the
future, to the extent that there are future premium
increases. Other profits, if any, will be applied to retire the
Limited RPR obligation. Jn view of the RPR policyowners’
and non-cancellable policyowners’ rights to these benefits, it is
essential that policyowners constantly keep the company
advised of any change in mailing address.
With the exception of the termination of RPR benefits
and the conversion of non-cancellable policies to
guaranteed renewable policies, no policy benefits are to be
85
changed. The company has always honored all policy
benefits except RPR, and it should be expected to do so in
the future.
You should not expect to receive further advise from
anyone representing UNAC until new management is
employed and has an opportunity to structure and assume
its appropriate duties. This should occur within the first
quarter of 1977, but may take longer. In the meantime, the
Rehabilitation Court will continue to monitor the affairs of
the company.
This letter is intended only to give you a general overview
of the Court’s final Order. A copy of the final Order and the
Pian as approved by the Court is available from the
Department upon request at $5.00 per copy if you desire a
copy prior to the time new management is required tosend
you one.
Sincerely yours,
H.P. Hudson, Commissioner
Indiana Department of Insurance
As Rehabilitator of Underwriters
National Assurance Company
HPH:jec
86
To All Members of the Class Composed of Past and Present
UNAC Policyholders
As the lead counsel for the Class of Policyholders for
UNAC, we are taking this opportunity to share with you
the current status of the Court approved Plan of
Rehabilitation referred to in Commissioner Hudson’s
letter, enclosed.
Any plan of rehabilitation is by definition a compromise
among conflicting interests. Its purpose is to identify the
underlying causes of a company’s financial problems, and
to establish a new means by which the rehabilitated
company can have a reasonable chance for future financial
stability and growth, consistent with the basic rights of
policyholders and creditors. The Plan of Rehabilitation for
UNAC attempts to fit this pattern, and represents the
collective effort of a great many people over a two-year
period.
The Court approved Plan of Rehabilitation contains
several provisions of prime importance and consideration
to you, the Policyholder. Principal among these is the
continuation of your basic insurance coverage which, if
UNAC was forced to liquidate, would be cancelled. In our
judgment, that alternative would not be in the best interest
of the Policyholders as a group.
The additional financial benefits to Policyholders are
fairly outlined in Commissioner Hudson’s letter. Among
those is the provision that any recoveries obtained in the
Hamilton County litigation against certain defendants will
enure to the benefit of the Policyholders who held the RPR.
We believe that litigation has possibilities for additional
recoveries by the RPR policyholders. As yet we are unable
to express an opinion as to the likelihood of success in that
action, but all efforts will be made on your behalf to
prosecute your claims to a successful conclusion.
There are a number of separate provisions in the
approved Plan which we, as your attorneys, have opposed
87
throughout the course of the Rehabilitation proceeding.
These provisions could now be the subject of an appeal
which we could prosecute on your behalf. However, based
upon our analysis of the facts, the applicable law and the
practicalities of the situation, it is our considered
judgment, and that of anumber of the named Policyholders
who have undertaken to be representatives of the Class,
that any appeal we might take from the Plan would
materially delay the Company’s rehabilitation under new
management and further erode its financial condition. For
these reasons, we are presently included to forego an appeal
from Judge Dugan’s Order and approved Plan.
We would, of course, prefer to communicate with each of
you on a personal basis, to answer any questions you might
have and to discuss the details of the Plan with you. By
virtue of your sheer numbers, that is impossible and is one
of the reasons for having class actions. Nonetheless, we and
the named representatives of the Class are interested in
. your thoughts on this matter. We can be reached at the
addresses listed below.
Sincerely,
Martin A. Smith, Esq. Richard H. Jones, Esq.
Stephen P. Carponelli, Esq. John E. Fricker, Esq.
Jeffrey M. Goldberg, Esq. 2054 N. 14th Street
10 South LaSalle Street Arlington, Virginia 22201
Chicago, Illinois 60603
John J. Dillon, Esq.
Gregory F. Hahn, Esq.
120 E. Market Street
Suite 511
Indianapolis, Indiana 46204
Attorneys for UNAC Policyholder Class
89
11.
{In the Superior Court of Marion County,
Indiana, Room No. 5]
[Title omitted in printing]
FILED JUNE 8, 1977
PETITION FOR INSTRUCTIONS CONCERNING
A SERVICE CONTRACT BETWEEN
UNDERWRITERS NATIONAL ASSURANCE
COMPANY AND EACH OF THE STATE
INSURANCE GUARANTY ASSOCIATIONS
Underwriters National Assurance Company (“Company”)
and the insurance guaranty associations in the states of
Connecticut, Kansas, Montana, Nevada, New Hampshire,
North Carolina, South Carolina and Vermont, which are
parties herein (“Guaranty Associations”), jointly petition
the Court for instructions concerning the execution of a
Service Contract as directed by the Court’s Entry of April
20, 1977. Pursuant to part X(C) of the Plan of
Rehabilitation approved by the Court on November 22,
1976, and the Court’s Entry of April 20, 1977, the Company
and the Guaranty Associations have now negotiated a
Service Contract acceptable to them, a copy of which is
attached hereto as Exhibit A.
WHEREFORE, the Company and the Guaranty
Associations ask the Court to enter an Order authorizing
and directing the Company and each of the Guaranty
Associations to execute a Service Contract in substantially
the form attached hereto as Exhibit A and to do all acts
90
reasonably necessary or appropriate to implement and
carry out the Service Contract.
Respectfully submitted,
BAKER & DANIELS
By /s/ Theodore R. Boehm
/s/ Charles T. Richardson
Attorneys for Underwriters
National Assurance Company
810 Fletcher Trust Building
Indianapolis, Indiana 46204
317/636-4535
KIGHTLINGER, YOUNG, GRAY
& DETRUDE
By /s/ Mark W. Gray
/s/ Donald L. Dawson
151 North Delaware Street Attorneys for Connecticut
Suite 660 Life and Health Insurance
Indianapolis, Indiana 46204 Guaranty Association, Kansas
317/638-4521 Life and Health Insurance
Guaranty Association, Mon-
tana Life and Health Insur-
ance Guaranty Association,
Nevada Life and Health
Insurance Guaranty Associa-
tion, New Hampshire Life
and Health Insurance Guar-
anty Association, North
Carolina Life and Accident
and Health Guaranty Associa-
tion, South Carolina Life
and Health Insurance Guar-
anty Association and Ver-
mont Life and Health Guar-
anty Insurance Association
[Certificate of service omitted in printing]
91
SERVICE CONTRACT
THIS AGREEMENT, executed at Indianapolis,
Indiana, this ___. day of 1977, by and between
Underwriters National Assurance Company, an Indiana
insurance corporation (“Underwriters”), and
organized under the law of (the “Guaranty
Association”),
WITNESSES:
Recitals
A. On August 5, 1974, the Superior Court of Marion
County, Indiana, Room No. 5 (“Rehabilitation Court”),
entered an Order of Rehabilitation pursuant to the law of
the State of Indiana concerning the affairs of Underwriters
in Cause No. S574-851;
B. On November 22, 1976, the Rehabilitation Court
entered a final Order and approved a Plan of
Rehabilitation for Underwriters, copies of which are
attached hereto and incorporated herein;
C. The Plan of Rehabilitation makes certain changes in
the insurance policies issued by Underwriters to its
policyowners prior to August 5, 1974, among which
changes are the following:
1. Certain of the policyowners have heretofore had
non-cancellable insurance policies which provide, in
effect, that there can be no increase of premium on the
policy during the term of the policy. The Plan of
Rehabilitation changes the non-cancellable insurance
policies to guaranteed renewable policies in which
there is a probability that there will be a premium
increase based upon experience by class.
2. Certain of the policyowners have heretofore had
insurance policies with a Return of Premium Rider
EXHIBIT A
92
(“RPR”) attached, promising a return of a portion of
the paid premiums if certain conditions set forth in the
policy are met. The Plan of Rehabilitation terminates
all obligations of Underwriters under the RPR; and
D. The Guaranty Association has informed Underwriters
that, pursuant to the law of the Guaranty
Association is required in certain instances to guarantee to
policyowners who qualify their rights tothe enforcement of
a non-cancellable insurance policy and to the enforcement
of an RPR; and
E. It is in the best interests of the policyowners whose
rights are guaranteed by the Guaranty Association for
there to be continuity in the servicing of the insurance
policies issued by Underwriters; and
“-F. Under the Plan of Rehabilitation, Underwriters will
continue as a rehabilitated insurance company and will
service its insurance policies, as changed and modified,
pursuant to the final Order and Plan of Rehabilitation;
Agreement
NOW, THEREFORE, in consideration of the mutual
covenants and conditions contained herein, the parties
agree as follows:
1. Servicing of Policies. Underwriters will continue to
service its insurance policies which are guaranteed by the
Guaranty Association in the same manner as it services its
insurance policies not so guaranteed. All billing for
premiums, all collection of premiums and the payment of
all claims, except RPR claims, arising under policies which
are guaranteed by the Guaranty Association will be made
by Underwriters. Underwriters will maintain adequate
records in order to determine the status of all insurance
policies which are guaranteed by the Guaranty Association
and to provide information to the Guaranty Association to
the extent required for the performance of the Guaranty
Association’s obligations hereunder. Not later than 60 days
>
93
after the last date for election by policyowners under
Underwriters’ notice provided by paragraph (4) of the final
Order, the Guaranty Association will certify to
Underwriters a list of those policies which are guaranteed
by the Guaranty Association. The parties understand that
the list may need to be amended in individual cases
thereafter.
2. Premium Increases on Previously Non-Cancellable
Policies. In the event that an increase in premium for basic
insurance coverage above the premium which could have
been charged by Underwriters for the same coverage as the
policy was written on August 5, 1974, is applicable to any
policy which was previously a non-cancellable pelicy, and
which the Guaranty Association has certified to
Underwriters as being guaranteed by the Guaranty
Association, Underwriters will keep a separate record of
the amount and date of the premium increase.
Underwriters will continue to bill the policyowner at the
premium which could have been charged by Underwriters
for the same coverage as the policy was written on August
5, 1974, and will bill the Guaranty Association for the
amount of the premium increase. The Guaranty
Association will pay to Underwriters the amount of the
premium increase and Underwriters will continue the
basic insurance coverage of the policyowner as if all of the
premium had in fact been paid by the policyowner.
3. Return of Premium Rider (“RPR”). If any
policyowner with a policy having an RPR which the
Guaranty Association has certified to Underwriters as
being guaranteed by the Guaranty Association desires to
continue to carry the RPR and pay the premium which
could have been charged by Underwriters for the same
coverage as the policy was written on August 5, 1974, for
the RPR, Underwriters will collect the premium for the
RPR from the policyowner and will remit said funds
quarter to the Guaranty Association. In the event the RPR
matures, the benefits payable under the RPR will be paid
94
by the Guaranty Association, not by Underwriters.
Underwriters will provide the Guaranty Association with
all statistical data necessary to determine the amount and
eligibility of the policyowner for RPR benefits within 15
days after the RPR has matured.
4. Assignments. The Plan of Rehabilitation provides for
the exercise of certain options by policyowners. The
Guaranty Association will require a written acknowledg-
ment in certain instances of an assignment to the Guaranty
. Association by a policyowner whose rights are guaranteed
by the Guaranty Association of all the policyowner’s rights
under the Plan of Rehabilitation. The Guaranty
Association will supply each assignment to Underwriters.
Underwriters will recognize any such assignment, as well
as the assignments provided by part X(C) of the Plan of
Rehabilitation, as valid and will make payments of any
funds payable to an assigning policyowner under the Plan
of Rehabilitation to the Guaranty Association pursuant to
the terms of the assignment.
5. Service Fee. In return for its services as set out in this
Service Contract, Underwriters will be paid by the
Guaranty Association a service fee in the amount of the cost
to Underwriters of rendering the service, computed
according to generally accepted accounting principles as
determined from time to time by Underwriters’
independent auditors. In the event Underwriters’
independent auditors decided that the expense of
determining such cost is excessive in relation to such cost,
the auditors may in their best judgment from time to time
fix a reasonable approximation of such cost which shall be
conclusive on the parties, unless the parties negotiate a
service fee. In addition, and as a part of the service fee, the
Guaranty Association agrees to indemnify and save
Underwriters harmless from and against all claims, losses,
damages, liabilities, costs, expenses and attorneys’ fees
arising out of this Service Contract, except in cases of
independent acts of negligence or willful misconduct by
Underwriters’ employees.
95
6. Payment of Service Fee and Other Monies. Except as
provided hereafter, all funds due the Guaranty Association
by Underwriters shall be mailed quarterly to the Guaranty
Association at such office and address as the Guaranty
Association shall from time to time direct in writing.
Underwriters shall prepare an invoice for each fiscal
quarter of Underwriters list and describing in reasonable
detail the service fee owed by the Guaranty Association
under paragraph 5 of the Service Contract for the past
quarter and other monies due Underwriters under this
Service Contract. All funds due Underwriters by the
Guaranty Association shall be mailed directly to
Underwriters within thirty days after the Guaranty
Assoctation receives an invoice therefor. Monies paid by the
policyowner to preserve his rights under the RPR are nota
premium for coverage but are a deposit to preserve the
rights of the policyowner under the Guaranty Association’s
enabling statute. The Guaranty Association is not an
insurer but is a guarantor only. If, as of any December 31,
the sum of all payments by the Guaranty Association to or
on behalf of policyowners are in excess of the sum of all
payments to the Guaranty Association by Underwriters
under this Service Contract, Underwriters shall mail tothe
Guaranty Association at such office and address as the
Guaranty Association shall from time to time direct in
writing and on or before the March 31 immediately
following that December 31, and each March 31 thereafter
until the excess has been fully reimbursed, a portion of
Underwriters’ statutory net gain from operations for the
year ended on that December 31 after dividends to
policyowners, federal income taxes and the payment to be
made under part XI of the Plan of coverage on August 5,
1974, divided by the total annual premiums in force for
basic coverage of Underwriters on August 5, 1974.
7. Audit. The Guaranty Association is entitled to
require an audit at its expense at any reasonable time to
review all payments and receipts contemplated by this
Service Contract.
96
8. Agents’ Commissions. No agents’ commissions shall
be paid or charged on any amount collected by
Underwriters and paid to the Guaranty Association on
account of RPRs. No agents’ commissions shall be paid or
charged on any amount paid to Underwriters by the
Guaranty Association on account of any premium increase
on previously non-cancellable policies.
9. Successors and Assigns. This Service Contract shall
be binding upon the successors and assigns of the parties.
10. Termination. This Service Contract shall remain in
force so long as the liability of the Guaranty Association
continues. However, the parties may terminate the Service
Contract by mutual agreement at any time, and either
party may terminate the Service Contract upon six months’
written notice of termination to the other party.
11. Jurisdiction of the Rehabilitation Court. It is clearly
understood by the parties that Underwriters, the Guaranty
Association and this Service Contract are subject to the
continuing jurisdiction of the Rehabilitation Court in
certain respects under the final Order and the Plan of
Rehabilitation.
12. General Conditions. This Service Contract is
executed under and shall be construed in accordance with
the laws of the State of Indiana. No waiver of any term or
condition of this Service Contract or of any breach of this
Service Contract shall be deemed or construed as a waiver
of any other term, condition, or breach, or of a subsequent
breach of the same term or condition. This Service Contract
constitutes the entire agreement between the parties
hereto, and there are no representations, terms, conditions
or agreements in respect of the same subject matter, with
the exception of the final Order, the Plan of Rehabilitation,
including part X(C) thereof, and the other orders of the
Rehabilitation Court.
97
IN WITNESS WHEREOPF, the parties have caused this
Service Contract to be executed on the day and in the year
first above written.
UNDERWRITERS NATIONAL
ASSURANCE
COMPANY
By
President
“Underwriters”
Attest:
“Guaranty Association”
Attest:
99
12.
NORTH CAROLINA IN THE GENERAL COURT OF
WAKE COUNTY JUSTICE, SUPERIOR COURT
DIVISION
78CV 174
NORTH CAROLINA LIFE AND )
ACCIDENT AND HEALTH INSURANCE
GUARANTY ASSOCIATION,
—— COMPLAINT
vs.
)
)
)
)
)
|
UNDERWRITERS NATIONAL ) FILED
ASSURANCE COMPANY, ) January 12, 1978
JOHN RANDOLPH INGRAM, )
COMMISSIONER OF INSURANCE )
OF THE STATE OF NORTH )
CAROLINA, AND HARLAN E. )
BOYLES, TREASURER OF THE )
STATE OF NORTH CAROLINA )
)
)
Defendants
Plaintiff, complaining of Defendants, alleges and says:
AS TO AND FOR THE COURT'S JURISDICTION:
1. This action is commenced under the provisions of the
Declaratory Judgment Act, G.S. §§1-253, et. seq., under the
North Carolina Life and Accident and Health Insurance
Guaranty Association Act, G.S. §§58-155.65, et. seqg., and
under certain other provisions of the Insurance Law, G.S.
§§58-182—58-188.8, regarding deposits by insurance
companies. Plaintiff's claims for relief are for declaratory
and other proper relief thereunder. Plaintiff's claims relate
to, among other things, personal property in this state
consisting of deposits by an insurance company, as
100
hereinafter alleged. Defendants have or claim interests
therein, and the relief demanded consists partially in
excluding one Defendant from any interests therein. The
Court has personal jurisdiction under G.S. §1-75.3 and
jurisdiction in rem or quasi in rem under G.S. §1-75.8.
2. Plaintiff, the North Carolina Life and Accident and
Health Insurance Guaranty Association (“Association”), is
a non-profit unincorporated legal entity organized under
the law of the State of North Carolina having its principal
office in Raleigh, North Carolina, and as such has the
capacity to sue in its own name in North Carolina.
3. Defendant Underwriters National Assurance
Company (“UNAC”) is an Indiana insurance corporation
that transacted the business of insurance in North
Carolina, and has or claims an interest in personal property
in this State, as hereinafter alleged.
4. Defendant John Randolph Ingram, Commissioner of
Insurance of the State of North Carolina (“Commissioner”),
is the duly elected Commissioner of Insurance of the State
of North Carolina.
5. Defendant Harlan E. Boyles, Treasurer of the State
of North Carolina (“Treasurer”), is the duly elected
Treasurer of the State of North Carolina.
FOR A FIRST CLAIM FOR RELIEF:
6. Article 17C, Chapter 58 of the General Statutes of
North Carolina, known as the “North Carolina Life and
Accident and Health Insurance Guaranty Association
Act,” G.S. §§58-155.65 et. seq., was enacted, ratified, and
effective at all times relevant to this action. Among other
things, the effects of the Act are (a) to state the purpose of
the Act as being to maintain public confidence in the
promises of insurers and, among other things, to provide a
mechanism for the payment of covered claims under
certain insurance policies, (b) to apply the Act to direct life
policies, accident and health insurance policies, and other
101
insurance policies, (c) to provide that the Act shall be
liberally construed to effect its purpose, (d) to create the
Association, (e) to provide the Association with certain
powers and duties which include, among others,
enumerated powers and duties regarding a foreign insurer
that is an impaired insurer under an order of liquidation,
rehabilitation, or conservation as defined in the Act, and
which powers and duties include provision that the
Association shall have standing to appear before any Court
in this State with jurisdiction over an impaired insurer
concerning which the Association is or may become
obligated under the Act, and (f) to provide for enumerated
duties and powers of the Commissioner.
7. Plaintiff is informed and believes, and so alleges, that
UNAC is a corporation organized under the law of the
State of Indiana, was authorized to transact in North
Carolina the business of writing insurance including direct
life policies, accident and health policies, and other
insurance policies, and did write such policies of insurance
in North Carolina.
8. Plaintiff is informed and believes, and so alleges, that
UNAC deposited with the Commissioner securities having
the total face value of $100,000 for the sole protection of
North Carolina policyholders of UNAC, and that the said
securities so placed on deposit with the Commissioner are
registered in the name of the Treasurer of the State of
North Carolina in trust pursuant to the provisions of
Article 20, Chapter 58, of the General Statutes of North
Carolina.
9. Plaintiff is informed and believes, and so alleges, that
the Commissioner has determined that UNAC is unable to
fulfill its contractual obligations and that, within the
meaning of the Act, UNAC is an impaired insurer under an
order of rehabilitation.
10. Pursuant to its powers and duties under the Act, the
Association is assuring payment of the contractual
102
obligations of UNAC to residents of North Carolina. The
Association has the right, by subrogation and otherwise, to
have the Commissioner sell and transfer the said securities
for the protection of North Carolina policyholders and to
have the said deposits applied to the payment of the
contractual obligations of UNAC to residents of North
Carolina.
11. An actual controversy exists as to the duties and
powers of the Association and as to its rights to have the
said deposits and securities applied to the payment of the
contractual obligations of UNAC to residents of North
Carolina.
AND FOR A SECOND CLAIM FOR RELIEF:
12. Plaintiff reaileges Paragraphs 1-11 with the same
force and effect as if set forth herein.
13. Pursuant to the provisions of a section of the Act,
namely G.S. §58-155.72(8), the Association has standing to
appear before this Court, and such standing shall extend to
all matters germane to the powers and duties of the
Association.
WHEREFORE, Plaintiff prays:
1. That the Court enter a judgment declaring the
Association’s powers and duties.
2. That the Court enter a judgment declaring the
Association’s right to have the said deposits and securities
applied to the payment of the contractual obligations of
UNAC to residents of North Carolina.
3. That the Court enter a judgment excluding UNAC
from any interest in the said deposits and securities, except
an interest in such sums as remain after the sale thereof
and application of the proceeds thereof to payment of the
contractual obligations of UNAC to residents of North
Carolina.
4. That the Court enter a judgment providing for its
retention of jurisdiction and for granting such further,
103
supplemental relief based on the declaratory judgment
herein prayed, whenever necessary or proper, as by law is
provided, and extending to all matters germane to the
powers and duties of the Association under the Act.
5. For such further relief as the Court may deem just
and proper.
ALLEN, STEED and ALLEN,
P.A.
By: /s/ Arch T. Allen, III
Attorneys for Plaintiff, North
Carolina Life and Accident and
Health Insurance Guaranty
Association
105
13.
{In The North Carolina General Court
of Justice, Superior Court Division,
Wake County]
[Title omitted in printing]
ANSWER (Filed March 14, 1978)
Underwriters National Assurance Company, defendant,
answering the Complaint, alleges:
1. That paragraphs 1, 2, 3, 4, and 5o0fthe Complaint are
not denied.
2. That paragraph 6 of the Complaint refers to
provisions of the General Statutes of North Carolina which
speak for themselves, or are subject to interpretation by the
court. Therefore, defendant denies the purported
interpretation contained in paragraph 6 of the Complaint.
3. Paragraph 7 of the Complaint is admitted.
4. Thatisis admitted that this answering defendant has
deposited securities having the total face value of
$100,000.00 with the Commissioner of Insurance of North
Carolina as a prerequisite for doing business in the state.
That the remaining allegations of paragraph 8 are denied.
5. Paragraphs 9, 10 and 11 of the Complaint are denied.
6. Answering paragraph 12 of the Complaint,
defendant restates its answers to paragraph 1 through 11 of
this Answer.
7. Paragraph 13 of the Complaint is denied.
FIRST DEFENSE
That the Complaint fails to state a cause of action upon
which relief can be granted.
106
SECOND DEFENSE
1. That this Court does not have jurisdiction in the
subject matter for the reason that there is a prior action
pending in the Superior Court of Marion County, Indiana,
Cause No. S574-851, in an action entitled “Department of
Insurance, State of Indiana, Petitioner vs. Underwriters
National Assurance Company, Respondent”, wherein said
Court is supervising the Rehabilitation of Underwriters
National Assurance Company and in such capacity has
complete control of and supervision over all the assets of
Underwriters National Assurance Company.
2. That security deposits held in trust are property
items and assets of Underwriters National Assurance
Company regardless of where situated and how held, and
as such are subject to the control, supervision and
jurisdiction of the Superior Court of Marion County,
Indiana, in the action referred to hereinabove which is still
pending in said Court.
3. That in the action pending in the Superior Court of
Marion County, Indiana, referred to hereinabove, the
plaintiff in this action is a party and is represented by Mark
W. Gray and Donald L. Dawson of the law firm of
Kightlinger, Young, Gray & DeTrude, 151 North
Delaware Street, Suite 660, Indianapolis, Indiana, 46204,
who are attorneys of record for the plaintiff in said action.
4. That a Plan of Rehabilitation and Settlement of
Claims and Litigation was approved in the Superior Court
of Marion County, Indiana, by Order and memorandum
dated November 22, 1976, and is still in effect and subject to
further orders of the Court. A certified copy of the Order
and Memorandum Approving Plan of Rehabilitation and
Settlement of Claims and Litigation entered by the
Honorable Michael T. Dugan, II, Judge of the Marion
County Superior Court, dated November 22, 1976 is
attached hereto as Exhibit No. 1.
107
5. That this Court is obligated, pursuant to the
provisions of Article IV of the United States Constitution,
to give full faith and credit to the public acts, records and
judicial proceedings of every other state. Therefore,
jurisdiction over the parties and the subject matter of the
subject action having been assumed by the courts of the
State of Indiana, this Court has no jurisdiction or authority
to proceed further in this action.
THIRD DEFENSE
That plaintiff has appeared voluntarily in the action
referred to hereinabove thereby subjecting itself to the
jurisdiction of the Superior Court of Marion County,
Indiana. That by such appearance, plaintiff has waived its
right to litigate any and all matters involving its
relationship with, and matured or potential claims against
defendant Underwriters National Assurance Company by
means of collateral attack in the courts of North Carolinaor
elsewhere.
FOURTH DEFENSE
That by its appearance in the action pending in the
Superior Court of Marion County, Indiana, plaintiff has
acknowledged and acceded to the jurisdiction of said Court
and its actions with respect to the property items and assets
of defendant Underwriters National Assurance Company,
and plaintiff is thereby estopped from attacking the
jurisdiction, orders, and other actions of said Court and
proceeding against this defendant in this action.
FIFTH DEFENSE
That the orders and proceedings in the Superior Court of
Marion County, Indiana, involving the rights, claims and
liabilities between plaintiff and defendant Underwriters
National Assurance Company are res judicata as to all
matters set forth in the complaint filed in this action.
Specifically, the November 22, 1976 Order, attached hereto
as Exhibit 1, sets forth in detail the method of
108
reimbursement for amounts paid by plaintiff on account of
claims against defendant Underwriters National
Assurance Company and plaintiff, as a party to said
rehabilitation action in the Superior Court-of Marion
County, Indiana, is bound by said Order.
FOR A COUNTERCLAIM AGAINST PLAINTIFF,
DEFENDANT UNDERWRITERS NATIONAL AS-
SURANCE COMPANY ALLEGES:
1. That plaintiff is not only a party to, but has and is
actively participating in the action still pending in the
Superior Court of Marion County, Indiana, referred to
hereinabove, which said action is still open for supervision
by the Court and further orders affecting the property and
assets of this defendant.
2. That the Superior Court of Marion County, Indiana,
is a Court of general jurisdiction, fully capable of granting
any and all relief available to the plaintiff by reason of the
matters and things stated in the Complaint, all of which
was known to the plaintiff prior to the commencement of
this action.
3. That the commencement of this action in the
Superior Court of Wake County, North Carolina by
plaintiff is a frivolous duplication intended for the purpose
of harrassing this defendant and improperly attempting to
interfere with the assets of Underwriters National
Assurance Company which are subject to the jurisdiction,
supervision and control of the Superior Court of Marion
County, Indiana, in the proceeding therein pending.
4. That by reason of the frivolous and improper acts of
plaintiff in commencing this action in the Wake County
Superior Court, Underwriters National Assurance
Company has been damaged by having to incur legal and
administrative costs in defending the same and is entitled
to recover such damages from the plaintiff in an amount to
be determined by the Court.
109
WHEREFORE, having fully answered the Complaint,
defendant Underwriters National Assurance Company
prays the Court:
1. That plaintiff's action be dismissed.
2. That defendant Underwriters National Assurance
Company recover from the plaintiff damages incurred by
reason of the frivolous and improper acts of the plaintiff in
commencing this action.
8. That the costs of this action be taxed against the
plaintiff.
PURRINGTON, HATCH &
McNAMARA, P.A.
/s/ A.L. Purrington, III
/s/ Edwin B. Hatch
605 Raleigh Building
P.O. Box 831
Raleigh, NC 27602
Telephone: (919) 828-7214
[Exhibit 1 omitted in printing]
111
14.
{In the Superior Court of Marion County,
Indiana, Room No. 5]
[Title omitted in printing]
FILED JULY 13, 1978
PETITION FOR INSTRUCTIONS
BY UNDERWRITERS NATIONAL ASSURANCE
COMPANY
Underwriters National Assurance Company (“Under-
writers”) petitions the Court for instructions concerning:
(1) the Return of Premium Rider (“RPR”) death claim of
the estate of United Kingdom policyowner George J.
Kingsley; (2) the handling of funds received as a result of
third party recoveries under part IX of the Plan of
Rehabilitation (“Plan”); (3) the impact of the lawsuit filed
against Underwriters by the North Carolina Life and
Accident and Health Insurance Guaranty Association
(“North Carolina Association”) upon the obligations of
Underwriters and of the North Carolina Association under
the Court-approved contract between Underwriters and
the North Carolina Association and under the orders of this
Court; and (4) the requests received by Underwriters from
various state insurance departments for a court order
stating that the rehabilitation proceeding was terminated
as of a certain date. Underwriters files this petition
pursuant to paragraph (10) of the Court’s final Order, dated
November 22, 1976, which says in relevant part:
“***The Court shall retain jurisdiction over the parties
and over this rehabilitation proceeding on petition of
any interested party or the Indiana Department of
Insurance (a) to resolve all questions as to
interpretation and implementation of the Plan and as
to the application of the Plan to specific facts and
112
circumstances and (b) to modify, amend or
supplement the Plan in any respect in the light of
future developments. The Court shall also retain
jurisdiction over the parties and over this rehabilitation
proceeding during the implementation of the Plan to
the extent necessary or appropriate to assure
compliance with the provisions of the Plan and the
Voting Trust and Depositary Agreement and to
resolve all questions in that respect.***”
I
The RPR Claim of George J. Kingsley ;
1. The Plan and the Court’s final Order make certain
reductions in the amounts payable by Underwriters on
account of any RPR on any policy written prior to
rehabilitation. Generally, all RPR benefits are
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