Appeal from the District Court of the United States for the Northern District of Illinois, Eastern Division; James H. Wilkerson, Judge.
Before ALSCHULER, EVANS, and SPARKS, Circuit Judges.
In November, 1932, the Illinois Life Insurance Company, hereinafter called the Illinois Life, became financially embarrassed and Abel Davis was appointed receiver of its property. At this date there was outstanding $140,000,000 of insurance held by 70,000 policyholders. Its reserves had become greatly impaired, and it had insufficient cash on hand to meet operating expenses, policyholders' loans, cash surrender claims, death claims, and other liabilities. Among those to file claims against it was a group whose claims arose out of so-called "post agency renewal commission contracts." Although their claims are disputed by the receiver and have not been passed upon, they assert that approximately $600,000 is due them.
The receiver found (and so reported) that the affairs of the Illinois Life were such that a reinsurance by a stronger and a better company was both advisable and necessary. After a thorough study of the perplexing problems which the negotiating of a reinsurance contract entails, the receiver submitted to the court a proposed contract of reinsurance with the Central Life Assurance Society of Iowa. In selecting the reinsuring company and in drafting the proposed contract, he was aided by the insurance commissioner of the State of Illinois and was advised by three disinterested and distinguished individuals whose experience in insurance matters had been wide and whose knowledge of insurance law was well recognized. This proposed contract was, after full hearing, duly approved by the court.
This appeal is from an order which effectuated this reinsurance contract. Appellants complain because (a) under the plan which was adopted they were not treated as fairly as other creditors, and (b) the valuation of the company's assets and the discharge of appellants' claims upon the basis of such valuation were prejudicial to them.
The master found and the court approved the finding that the fair value of the assets of the company was $4,239,999.73. The total indebtedness was approximately $27,240,000, of which $24,281,462.43 represented the required reserve of the company and $2,957,233.73 covered all other claims filed with the receiver.
The court ordered the receiver to transfer the assets of the Illinois Life to the Central Life Assurance Society. The transferee gave the necessary assurance that it would furnish the receiver with funds upon the determination of the amount necessary to pay dividends upon claims filed and allowed against the receiver, as well as unpaid receivership expenses. The contract of reinsurance permitted, but did not require, policyholders to accept the terms of the reinsurance contract. Appellants, if their claims are finally allowed, will be paid upon the basis of the value of the assets less receivership expenses. They will receive such proportion thereof as their claims bear to the total indebtedness.
Appellants' first attack upon the order is predicated upon what they claim is a grossly inadequate valuation of the assets of the Illinois Life. They likewise claim that there was no competent evidence before the master upon which a just valuation could be based. Likewise, they argue that the valuation witnesses were not sufficiently familiar with the properties covered by the Illinois Life's mortgages to qualify them to testify.
This issue is largely one of fact, although the qualification of the witnesses, as well as their fact information, may well involve questions of law. Five witnesses gave testimony of values. They were well qualified in their respective fields to appraise the value of the real estate. Each had had extended experience. They were disinterested. Their testimony was in no way contradicted.
The task of appraising the value of these securities was a most difficult one. Mathematical accuracy was quite impossible. The total number of farm mortgages was approximately 2,000, scattered throughout a half dozen states. They were for the most part in default both as to principal and interest. The percentage in good standing was small compared to the amount under foreclosure. On many tracts there were back taxes due and unpaid.
As illustrative of the conditions generally, the figures concerning Kansas mortgages might be given. There were 87 mortgages in good standing, aggregating $342,108.34. There were 618 delinquent mortgages, aggregating $3,190,646.45. 173 mortgages, aggregating $1,124,815.24, were under foreclosure. The title to 63 tracts of land, aggregating 26,481.62 acres, had been acquired through foreclosure or other proceedings. The appraised value of the mortgages and land acquired was approximately 30% of their book value.
The witnesses and the special master divided the assets into three classes. One included farm mortgages. Another covered real estate mortgages and home office buildings in Chicago. The third class included investments in bonds, notes, and stocks. The Chicago real estate mortgages and securities were valued at $1,307,250. The home office building was valued at $500,000. The Hotel La Salle security was appraised at $650,000.
We think there is no legitimate basis for criticizing the valuation placed upon the mortgages covering Chicago property. The loans were larger, and a more thorough study was possible. If anyone could fairly complain of their valuation we are ...