Maryland Life & Health Insurance Guaranty Ass'n v. Perrott

RODOWSKY, Judge. Appellant, Maryland Life and Health Insurance Guaranty Association (the Association), is a nonprofit legal entity created by the Maryland Life and Health Insurance Guaranty Association Act, Md. Code (1957, 1979 Repl.Vol., 1983 Cum.Supp.), Art. 48A, §§ 520-537 (the Md. Act). The goal of the Md. Act is to protect certain classes of persons against loss due to financial failure by a life, health, or annuity insurer. See § 521.

Appellee, James A. Perrott (Perrott), is the receiver in liquidation of American Centennial Life Insurance Company (ACLIC), a dissolved Maryland corporation which wrote health, life, and annuity coverage. In this case the Association seeks certain financial information concerning ACLIC and the receivership. The trial court, viewing the Association as simply a creditor, denied access to the data. The Association appealed.

On our own motion we issued the writ of certiorari to the Court of Special Appeals prior to its consideration of the matter in order to address the relationship of the Association under the Md. Act to the receivership proceedings. As hereinafter explained, the Association is not merely a creditor. The particular issues presented arise out of the following facts. ACLIC was a wholly owned subsidiary of Tidewater Group, Inc. (Tidewater).

On October 1, 1979, Tidewater filed a petition under Chapter 11 of the Bankruptcy Reform Act in the Bankruptcy Court for the Northern District of Georgia. About October 30, 1979, Tidewater and Providers ⁸² Benefit Life Insurance Company (Providers) agreed that the latter would buy all of the stock in ACLIC for “$700,000 subject to adjustment based on the deficiency in the capital and surplus account.” In re Tidewater Group, Inc., 13 B.R. 764, 765 (Bankr.N.D.Ga.1981), appeal dismissed, 22 B.R. 500 (D.C.N.D.Ga.1982), appeal dismissed, 734 F.2d 794 (11th Cir.1984). By November 21, 1979, Providers was suing Tidewater to recover the deposit and to be relieved by the Bankruptcy Court from its approval of the sale. Providers claimed that ACLIC’s financial condition had been materially misrepresented arid that purported warranties in the purchase contract had been breached.

When Tidewater counterclaimed for damages for breach of the purchase contract, Providers impleaded ACLIC as a third-party defendant, and ACLIC followed with a counterclaim against Providers. See In re Tidewater Group, Inc., 22 B.R. 500, 502 (D.C.N.D.Ga.1982), appeal dismissed, 734 F.2d 794 (11th Cir.1984). That litigation is still pending insofar as we are informed by the record or by counsel. On November 29, 1979, the then Insurance Commissioner of Maryland, Edward J. Birrane, Jr. (Birrane), caused a complaint to be filed against ACLIC in the Eighth Judicial Circuit, pursuant to the Rehabilitation and Liquidation subtitle of the Insurance Code, Art. 48A, §§ 132 to 164A.

The equity court appointed Birrane as rehabilitator per §§ 141 and 145. When a cursory financial review by the Maryland Insurance Division indicated ACLIC’s deficit as of February 1980 to be approximately $1,700,000, the equity court on April 2, 1980, directed liquidation and appointed Commissioner Birrane to be receiver, as specified in § 145. During that liquidation, claims on ACLIC’s policies have been paid by the Association, in accordance with the statutory scheme described below. Life, health, and annuity insurers in Maryland must “be and remain members of the Association as a condition of their authority to transact insurance in this State.” § 525(1).

With respect to a domestic insurer in liquidation ⁸³ such as ACLIC, § 527(3) provided in 1980 in relevant part that the Association shall, subject to the approval of the [Insurance] Commissioner, (a) Guarantee, assume, or reinsure, or cause to be guaranteed, assumed or reinsured, the covered policies of the impaired insurer; (b) Assure payment of the contractual obligations of the impaired insurer; and (c) Provide such moneys, pledges, notes, guarantees, or other means as are reasonably necessary to discharge such duties.[ 1 ] There is a board of directors of the Association (the Board) which, under § 528, has authority to assess member insurers “for funds to meet the requirements of the Association with respect to an impaired insurer [when] necessary to implement the purposes of [the Md. Act].” § 528(3)(d). Section 158A, part of the Rehabilitation and Liquidation subtitle, makes the Association a preferred creditor in a liquidation proceeding. In the ACLIC liquidation the court on May 20, 1980, authorized the receiver to employ a firm of certified public accountants and on February 18, 1981, directed the receiver to have those accountants audit ACLIC, with the “audit report to be filed with this Court and [made] a part of its record.” Three reports have been filed as they became available. All of them have been sealed under order of court.

The first report is described in the court’s order as being “for the year ending March 31, 1980.” Papers in the public court file describe the next two reports as audits for the years ending March 31, 1981 and 1982, respectively. In his March 3, 1982, petition for reports to be sealed, Commissioner Birrane, as receiver, referred to the litigation in the ⁸⁴ bankruptcy court in Georgia. He alleged “that all such audit reports will, of necessity, reflect confidential Receivership operational plans for the prosecution of said litigation, the disclosure of which, would seriously impair the Receivership’s case ...” and that sealing the reports was “necessary to preserve and protect your Petitioner in it’s [sic ] tactics and trial strategy____” A court order of September 8, 1982, directing that the third report be sealed recites that “the Court is convinced that absent Protective Order, there is a strong likelihood, that confidential Receivership information concerning litigation presently being prosecuted by the Receiver will be publicly disclosed____” The petitions to seal the reports were presented ex parte, and the orders to seal were entered ex parte, in accordance with accepted and generally proper practice in receivership proceedings. Cf.

Maryland Rule BP6, which, while inapplicable to receiverships of insurers, does not require notice of an application to employ an accountant. At the 1982 session of the General Assembly, Art. 48A, § 133 had been amended to give the equity court authority, inter alia, to appoint a person other than the incumbent insurance commissioner as receiver for a defunct insurer. After Birrane had resigned as commissioner, effective September 7, 1982, the court on December 2, 1982, appointed Perrott as ACLIC’s receiver. 2 The issues giving rise to the instant appeal were generated when the Association on June 30, 1983, filed a petition in the receivership requesting certain orders. Specifically, the Association asked the Court to grant the Association “leave to intervene as a party” in the receivership proceedings; and to order the receiver “to make available to the Petitioner for inspection and review all of its records pertaining to the insurance policies of [ACLIC] and all of the financial records of the Receivership”; and ⁸⁵ to order that “all audit reports which have been filed herein ... be unsealed as to the [Association].” The petition cited § 527(8) as the Association’s authority to intervene.

That subsection reads: 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 this subtitle. Such standing shall extend to all matters germane to the powers and duties of the Association, including, but not limited to, proposals for reinsuring or guaranteeing the covered policies of the impaired insurer and the determination of the covered policies and contractual obligations. Supporting that petition was an affidavit by the chairman of the Board. He pointed out that the Association had paid in excess of $2,300,000 to claimants under covered policies of ACLIC, exclusive of monies received by the Association in certain distributions made by the receiver, that the Association had levied one assessment of $1,300,000 and another of $750,000, and that the “Association has a statutory obligation to find a solvent insurance company to assume the existing insurance policies of [ACLIC].” The chairman said that the Association was “unable to perform [that] duty” because, despite requests for information, it did not know if the receiver had maintained reserves or had assets which could be used for reserves.

The affiant represented that the Board did not even know “the amount of premiums generated by the [existing ACLIC] policies.” Emphasizing that, although the Association was paying claims on the ACLIC policies, the receivership was collecting the premiums, the affidavit disclaimed knowledge of whether premiums were being set aside for reserves or were being used by the receiver for current expenses. The Association’s chairman also asserted his “reasonable belief that the current activities of the receivership do not warrant” the current level of expenses for salaries and expressed as additional reason for disclosure his desire to have precise data on that subject. ⁸⁶ When the Association’s petition came on for hearing, no testimony was taken. Nor did the receiver present any facts by way of affidavit, although his unsworn answer to the petition and the argument of his counsel again claimed unsealing of the reports would prejudice the litigation in Georgia. Despite having relied on § 527(8) in its petition, the Association at the hearing orally argued that it was entitled to the requested orders because it was a priority creditor in a substantial amount.

The trial court found no merit in that argument. In ruling from the bench, the chancellor observed that “[*']/ [the receiver and his counsel] are right about the litigation in Georgia, I don’t want to do anything that is going to jeopardize chances of a substantial recovery ____” (Emphasis added.) The court concluded: Balancing the interest[s] involved, I don’t see the Association having any interest really, except for their priority status over any other creditor as far as seeing records. So I will deny the request to intervene and disclosure of the records. They will remain sealed.

At oral argument before this Court, counsel on both sides made a number of concessions which clarify and limit the scope of the dispute and which we shall describe more particularly, infra, when discussing the particular items of relief requested. Concessions at oral argument are appropriately considered on decision of an appeal. See J.I. Case Credit Corp. v. Insley, 293 Md. 483, 486-87 , 445 A.2d 689, 691-92 (1982); Cloverfields Improvement Ass’n, Inc. v. Seabreeze Properties, Inc., 280 Md. 382 , 373 A.2d 935 , motion for reconsideration, 280 Md. 400, 400-05 , 374 A.2d 906 , 907-09 (1977). I Before reaching the merits, we must consider the appeal-ability issue raised by the receiver.

In the course of giving his ruling, the trial judge indicated that he would likely unseal the records within one year if the Georgia litigation were not settled by that time. This, says the receiver, ⁸⁷ prevents the denial of the requested information from being a final order. In Shenk v. Maryland District Savings & Loan Co., 235 Md. 326 , 201 A.2d 498 (1964) a free shareholder in a savings and loan association which had been placed in receivership appealed from the denial of a motion to intervene in the proceedings. That intervention had been requested solely for the “purpose of keeping the appellant informed.” Id. at 327 , 201 A.2d at 499 .

We analyzed the matter under former Md. R. 208, the intervention rule, and concluded that the free shareholder could not intervene as of right and that there had been no abuse in denying discretionary intervention. Thus, under Shenk the Association’s request to intervene to obtain information relating to the ACLIC receivership is a request for a form of intervention governed by former Rule 208, which was in effect when the court below ruled. Denial of intervention, sought either as a matter of claimed right or by permission, is an appealable final order. See Maryland Radiological Society, Inc. v. Health Services Cost Review Comm’n, 285 Md. 383 , 388 n. 4, 402 A.2d 907 , 910 n. 4 (1979); Citizens Coordinating Comm. v. TKU Assocs., 276 Md. 705 , 351 A.2d 133 (1976); Hall v. Jack, 32 Md. 253 (1870). 3 The possibility that, at a later date, the court might order to be done that which the requested intervention sought to accomplish does not make a denial of intervention any less a final order.

II Central to the disposition of the merits of this appeal are subsections 527(3) and (8) dealing with the duty and “stand ⁸⁸ ing” of the Association. They