Foster v. Westmoreland Casualty Co.

540 A.2d 347, 115 Pa. Commw. 393, 1988 Pa. Commw. LEXIS 262

• Court: Commonwealth Court of Pennsylvania
• Decided: April 18, 1988
• Docket: No. 2645 C.D. 1987
• Status: Published

Opinion

Opinion by

President Judge Crumlish, Jr.,

The Insurance Commissioner has filed a petition for liquidation in -our original jurisdiction,¹ seeking an involuntary. dissolution of Westmoreland Casualty Company and a formal liquidation order pursuant to Article V of the Insurance Department Act of 1921 (Act).² Westmoreland has filed preliminary • objections which are now before us.

An independent actuarial firm analyzed Westmorelands financial condition and found significant reserve deficiencies and operating ..losses which threatened its financial integrity. Thereafter, a formal agreement was reached between the Insurance Department and Westmoreland under which Westmoreland would be permitted to continue operations provided certain written commitments for funds were obtained. Westmoreland agreed to waive its right to contest a liquidation petition if it did not obtain these funds..: Despite these events, two top Westmoreland officers were issued bonuses in excess of $30,000 and guaranteed $100,000 salaries. When the deadline for obtaining the funds expired, the Commissioner ordered Westmoreland to suspend business. These facts, as averred in the Commissioners petition, constitute the basis for the requested dissolution and liquidation of Westmoreland.

Westmorelands' initial preliminary objection alleges that the instant petition lacks specificity because it fails to identify what acts -constitute grounds for liquidation. This contention is clearly without merit.

Section 520(a) of the Act, 40 P.S. §221.20(a), provides:

(a) The commissioner may apply.by petition to the Commonwealth Court for. an order directing him to liquidate a domestic insurer, domiciled in this Commonwealth, alleging-that the insurer has committed one or more .acts which may constitute grounds for liquidation.; as set forth in sections 514 and 519 of this article.

The petition in question not only, avers insolvency and hazardous financial condition as general grounds for liquidation³ but it also refers specifically to the results of the investigation conducted by the independent actuarial firm as well as the allegedly improper actions of key company officers. Such averments clearly satisfy the requirements of Section 520(a).

Westmoreland also preliminarily objects to the filing of a liquidation petition prior to an administrative hearing. Westmoreland contends that the petitions averments, as well as the entry of the suspension order, constitute adjudications thereby mandating a hearing pursuant to the Administrative. Agency Law.⁴ Westmoreland also relies on Section 520(f) of the Act as support for the alleged necessity of such hearing. Again, we disagree.

Section-520(f), 40 P.S. §221.20®, states:

(f) At the time of petitioning for an order of liquidation, or at any tiiiie thereafter^ the commissioner, after making appropriate findings of an insurers insolvency, following an administrative hearing, may petition the court for a judicial declaration of such insolvency. After providing such notice and hearing as are permitted for appeals from administrative agencies, the court may make the declaration.

We interpret this section to provide for an administrative hearing and appropriate findings only where the Commissioner reqüests a judicial declaration of insolvency in conjunction with a pending liquidation proceeding. In contrast, Section 520(a) and (b)⁵ state that the Commissioner may directly petition this Court for a liquidation order pursuant to which court hearings would then be held.⁶ The distinction as to the form of proceeding is clearly delineated in Section 520 and, as such, is not to be disregarded.⁷

Lastly, we reject Westmorelands contention that the averments contained in the liquidation petition, whether considered alone or in combination with the suspension order, constitute in. any respect an adjudication subject to the notice and hearing provisions of the Administrative Agency Law. Westmoreland misapprehends the fundamental distinction between mere averments which may or may not be credited by a fact-finding body and a final agency determination which has a direct and substantial effect on personal or. property rights. We also note that the suspension order entered in this matter was properly accompanied by a hearing notice. Although the record does not disclose why a hearing, twice continued, was not held, it is apparent that Westmoreland has yet to avail itself of that right.

Accordingly, we overrule the preliminary objections.

Order

Defendants preliminary objections are overruled. We direct defendant to file responsive pleadings within thirty (30) days of the date of this Order.

Judge Smith concurs in the result only. ■

1 42 Pa. C. S. §761(a)(3).

2 Act of May 17[ 1921[ P.L. '789, as amended, added by the Act of December 14, 1977, P.L. 280, 40 P.S. .§§221.1—221.63.

3 Section 519 of the Act permits any ground upon which a rehabilitation order may be based to serve also as grounds for liquidation. Section 514(1) of the Act, 40 P.S. §221.14(1), provides:

An order of rehabilitation may be based on one or more of the following grounds.

(1) The insurer is insolvent, or is in such condition that the further transaction of business would be hazardous, financially, to its policyholders, creditors,or the public.

4 2 Pa. C. S. §§101—754.

5 Section 520(b) provides:

(b) An order of the Commonwealth Court to liquidate the business of an insurer shall be issued only after a hearing before the court or pursuant to a written consent of the insurer.

6 This same procedure is required when' a rehabilitation petition is submitted under Section 515(a) and (b).

7 Section 1921 of the Statutory Construction Act of 1972, 1 Pa. C. S. §1921.