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Ballou v. Davis

January 23, 1935

BALLOU ET AL.
v.
DAVIS ET AL.



Appeal from the District Court of the United States for the Northern District of Illinois, Eastern Division; James H. Wilkerson, Judge.

Author: Evans

Before ALSCHULER, EVANS, and SPARKS, Circuit Judges.

EVANS, Circuit Judge.

Appellants, who were members of a policyholder's protective committee, attack the validity of the order of the District Court of December 28, 1933, directing a transfer of the Illinois Life Insurance Company's assets to the Central Life Assurance Society, pursuant to the provisions of a reinsurance contract previously executed. They assail the reinsurance contract on the following grounds:

(1) The reinsurance contract, not having been submitted to and approved by the Illinois Insurance Department as required by the Illinois Statute (Smith-Hurd Ann. St. Ill. c. 73, ยง 272), is ineffective.

(2) The Central Assurance Society could not, under sections 9116 and 9118 of the Iowa statutes (Code 1931), enter into a reinsurance contract with a company (insolvent) not authorized to do business in Iowa and could not act as a trustee or manager of Illinois Life funds as required by the reinsurance contract.

(3) The reinsurance contract does not in fact, until 1948, reinsure Illinois Life policyholders. It is therefore a fraud on the policyholders, and its provisions are unfair to them, because premiums paid by them to a nonresident company are taxable and the Central Life Assurance Society is financially embarrassed.

(4) The District Court improperly exercised jurisdiction, as the Illinois Insurance Department alone has the power to appoint a receiver and administer the assets of insolvent Illinois insurance companies.

Appellees, in addition to controverting all appellants' contentions, contend that the order appealed from is not appealable.

The Facts. Two petitions seeking the appointment of a receiver of the Illinois Life Insurance Company (a company of 70,000 policyholders) to conserve its assets were filed in the District Court in November, 1932, one by a stockholder and the other by a policyholder. These petitions were consolidated, and Mr. Abel Davis was appointed receiver. The following month appellants were given leave to intervene. In June, 1933, the District Court appointed an advisory board of three disinterested, well-qualified, and widely-experienced members (Mr. William H. Thompson of Indianapolis, Indiana, Mr. Sam T. Swansen of Milwaukee, and Mr. Thomas L. Marshall of Chicago), who were directed, in cooperation with the receiver and the Illinois insurance commissioner, to report a plan of reinsurance. This board held open meetings on seven different days when the proponents of various plans were heard and the merits of the respective plans discussed. A stenographic record of the proceedings before the board is incorporated in the record. There was complete cooperation between Mr. Palmer, Director of Insurance of the State of Illinois, the receiver, and the advisory board. Their efforts were directed to the securing of a strong, reliable insurance company which would reinsure policyholders of the Illinois Life upon terms that fairly and adequately protected them. The advisory board's report set forth the three classes of plans considered and recommended the adoption of the Central Life's proposal. On July 22, 1933, the court adopted the board's findings and approved the reinsurance contract with the Central Life. The court also referred the matter of appraisal of the cash liquidating value of the Illinois Life's assets to a master. On August 7, 1933, the receiver reported to the District Court that the proper Iowa state officials had approved the reinsurance contract, which by its terms was subject to such approval.

The appellants' charge that the reinsurance contract is a fraud on the policyholders and is unfair to them is unsupported by a shred of evidence. Equally unsubstantiated and reckless is the assertion that the Central Life Assurance Society is financially embarrassed. The evidence completely and conclusively established the contrary.

The reinsuring company, the Central Life Assurance Society, was examined by the state insurance departments of Iowa, Minnesota, and Nebraska shortly before the reinsurance contract was drafted. These examining bodies, in their report, stated:

"As shown by this examination, the Central Life Assurance Company (mutual) is in excellent financial condition with reserves and surplus that guarantee the adequate protection of its policyholders.

"The operation of the Society is carried on efficiently and economically. The application of the organization, from clerks to officers, is noteworthy, and as a result, the corporation is operating as one harmonious ...


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