Les Eckert and Aberdeen Insurance Services, Inc. v. Jose Montemayor, in His Official Capacity as Commissioner of Insurance for the State of Texas and Texas Department of Insurance

CourtCourt of Appeals of Texas
DecidedMarch 31, 2005
Docket03-04-00507-CV
StatusPublished

This text of Les Eckert and Aberdeen Insurance Services, Inc. v. Jose Montemayor, in His Official Capacity as Commissioner of Insurance for the State of Texas and Texas Department of Insurance (Les Eckert and Aberdeen Insurance Services, Inc. v. Jose Montemayor, in His Official Capacity as Commissioner of Insurance for the State of Texas and Texas Department of Insurance) is published on Counsel Stack Legal Research, covering Court of Appeals of Texas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

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Les Eckert and Aberdeen Insurance Services, Inc. v. Jose Montemayor, in His Official Capacity as Commissioner of Insurance for the State of Texas and Texas Department of Insurance, (Tex. Ct. App. 2005).

Opinion

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN





NO. 03-04-00507-CV




Les Eckert and Aberdeen Insurance Services, Inc., Appellants


v.


Jose Montemayor, in his Official Capacity as Commissioner of Insurance for

the State of Texas and Texas Department of Insurance, Appellees





FROM THE DISTRICT COURT OF TRAVIS COUNTY, 126TH JUDICIAL DISTRICT

NO. GN303607, HONORABLE SUZANNE COVINGTON, JUDGE PRESIDING



M E M O R A N D U M O P I N I O N



                        In this case, we review the district court’s grant of summary judgment against Aberdeen Insurance Services, Inc. (Aberdeen Insurance), and Les Eckert concerning an order of the Commissioner of Insurance releasing Aberdeen Insurance from statutory supervision. See Tex. Ins. Code Ann. art. 21.28-A (West Supp. 2004-05). We will affirm.


BACKGROUND

                        The underlying dispute concerns two distinct sets of statutory procedures in the Commissioner’s arsenal of powers he may exercise to regulate Texas insurers and protect Texas insurance consumers. See id. §§ 81.001-85.052 (West Supp. 2004-05) (Discipline and Enforcement); art. 21.28-A (Insurer Delinquencies and Prevention of Insurer Delinquencies; Supervision of Insurers and Proceedings, Conservatorships, Liquidations—Additional and Alternate Provisions). The first is the Commissioner’s disciplinary power and the ability to enforce the insurance code against regulated insurers. Id. §§ 81.001-85.052. Under his disciplinary powers, the Commissioner may, after notice and opportunity for a hearing, cancel or revoke an insurer’s authorization to engage in the business of insurance in Texas if the Commissioner finds that insurer to be in violation of, or to have failed to comply with, the insurance code or the Commissioner’s rules. Id. § 82.051; see also id. § 82.001 (definition of authorization). The Commissioner may also assess an administrative penalty, suspend the insurer’s authorization, or issue cease-and-desist orders. Id. § 82.052. He may also order restitution. Id. § 82.053. The focus of the Commissioner’s disciplinary powers is to sanction and penalize insurers who violate insurance code provisions and to protect the public from unfair acts and fraudulent or hazardous conduct. See id. §§ 82.051-.053, 83.051.

                        However, the legislature has decided that “existing provisions and conditions of law and the ordered procedures of law are sometimes not adequate, nor appropriate under all circumstances, in respect of a need to remedy the financial condition and the management of certain insurers.” Id. art. 21.28-A, § 1. Thus, it has created the second set of statutory procedures at issue here—a system of supervision “to provide for rehabilitation and conservation of insurers.” Id. By “authorizing and requiring the additional facility of supervision and conservatorship by the commissioner,” the legislature authorized the Commissioner to attempt to rehabilitate and conserve insurers and “to avoid, if possible and feasible, the necessity of temporary or permanent receivership.” Id. In contrast to the Commissioner’s disciplinary powers, the legislature’s goal in conferring these supervisory powers is to preserve insurer assets and, without regard to whether any wrongdoing has occurred, to ensure public confidence in the ability of the state to regulate the insurance industry. Id.

                        Upon a determination that an insurer is insolvent, that the continuance of its business would be hazardous to the public, that it has exceeded its statutory powers, or that it has failed to comply with the law, the Commissioner shall place the insurer under supervision and impose requirements for the termination of supervision. Id. art. 21.28-A, § 3. Supervision may last for up to 180 days. Id. During the period of supervision, the Commissioner may hold a hearing to review the insurer’s progress in complying with the terms of supervision, after which the Commissioner may release the insurer from supervision or take charge of the insurer as conservator. Id. art. 21.28-A, §§ 3, 5. During conservatorship, the Commissioner may continue to operate the insurer’s business or may direct the Attorney General to file a petition in Travis County to revoke the insurer’s charter. Id. art. 21.28-A, § 5. The legislature has given the Commissioner discretion to determine the appropriateness of supervision, compliance with its terms, and the proper course of action within the supervisory powers granted. Id.

                        The facts in this case are not in dispute. Les Eckert individually held a General Property and Casualty license and a Surplus Lines license issued by the Texas Department of Insurance (the Department). He was also the president and sole director and shareholder of Aberdeen Insurance, which held Department-issued Corporate General Property and Casualty and Corporate Surplus Lines licenses. On November 17, 2000, the Department notified Eckert that it intended to pursue a disciplinary action against both him individually and Aberdeen Insurance. See id. §§ 82.001-.056. The Department suspected that Aberdeen Insurance and Eckert, acting as agents of third-party insurance carriers, wrongfully collected from customers amounts in excess of premiums actually due for insurance coverage and failed to forward to the carriers a portion or all of the premium funds due.

                        On April 8, 2002, the Commissioner issued an official order placing Aberdeen Insurance (but not Eckert individually) under supervision and appointing a conservator. The order explained that the Commissioner had determined that (1) Aberdeen Insurance had not complied with the terms of a previous supervision order; (2) Aberdeen Insurance’s management might have engaged in unlawful transactions; (3) Aberdeen Insurance’s management might not have the experience, competence, or trustworthiness to operate Aberdeen Insurance in a safe and sound manner; (4) Aberdeen Insurance might not be able to pay its liabilities as they become due; and (5) rehabilitation or conservation of Aberdeen Insurance would not be inefficient or impracticable. See id. art. 21.28-A, § 3. The Commissioner also stated that supervision would be abated on a showing that Aberdeen Insurance had complied with various requirements detailed in the order. Furthermore, he would hold a hearing after notice, and, if he found compliance, abatement of the supervision order would be warranted. However, if the Commissioner found that Aberdeen Insurance failed to show compliance or if he found that Aberdeen Insurance violated a provision of article 21.28-A, he would enter an order applying article 21.28-A remedies and sanctions. See id. §§ 3, 5. Elizabeth Fuller, a staff attorney in the Legal & Compliance division of the Department, drafted the supervision order.

                        The Department set a hearing before an Administrative Law Judge (ALJ) at the State Office of Administrative Hearings (SOAH) on October 1, 2002, to determine whether Aberdeen Insurance had met the abatement terms set out in the supervision order. Aberdeen Insurance requested a continuance because Eckert was attempting to sell the company’s assets.

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Les Eckert and Aberdeen Insurance Services, Inc. v. Jose Montemayor, in His Official Capacity as Commissioner of Insurance for the State of Texas and Texas Department of Insurance, Counsel Stack Legal Research, https://law.counselstack.com/opinion/les-eckert-and-aberdeen-insurance-services-inc-v-jose-montemayor-in-his-texapp-2005.