NORTH CAROLINA LIFE AND ACCIDENT AND HEALTH INSURANCE GUARANTY ASSOCIATION
v.
UNDERWRITERS NATIONAL ASSURANCE COMPANY, John Randolph Ingram, Commissioner of Insurance of the State of North Carolina and Harlan E. Boyles, Treasurer of the State of North Carolina.
No. 7910SC766.
Court of Appeals of North Carolina.
September 2, 1980.*692 Allen, Steed & Allen by William S. Patterson, Charles D. Case and Ann Hogue Pappas, Raleigh, for plaintiff.
Purrington, McNamara & Pipkin by Ashmead P. Pipkin, Raleigh, for defendant Underwriters National Assurance Company.
ROBERT M. MARTIN, Judge.
The question presented for review is whether plaintiff's motion for summary judgment was properly granted. This is a proper case for a declaratory judgment, G.S. 1-254, and the Guaranty Association is entitled to maintain the action. Blades v. City of Raleigh, 280 N.C. 531, 187 S.E.2d 35 (1972). The propriety of a summary judgment in such action is governed by the same rules applicable to other actions, G.S. 1A-1, Rule 56(a) and (b) and 57. Here, there is no substantial controversy as to the facts disclosed by the evidence and the legal significance of those facts presents the questions in dispute. It was unnecessary for the Guaranty Association to show that it had suffered any loss or had any right impaired in order to maintain the action. Rather, the Association had to show that it would ultimately suffer a loss or have a right impaired. Newman Machine Co. v. Newman, 2 N.C.App. 491, 163 S.E.2d 279 (1968), rev'd on other grounds, 275 N.C. 189, 166 S.E.2d 63 (1969).
The trial court entered an order which found "specified facts without substantial controversy," made conclusions of law and ordered that:
1. The UNAC policyholders residing in North Carolina on August 5, 1974, are entitled to have the deposit made by UNAC for the sole protection of North Carolina policyholders liquidated and to have the proceeds applied to meet the pre-rehabilitation obligations owed to them by UNAC to the extent those obligations were defaulted upon as a result of the insolvency of UNAC and the subsequent rehabilitation proceeding in Indiana.
2. To the extent that the proceeds of the deposit made by UNAC for the sole benefit of North Carolina policyholders fulfill the contractual obligations owed by UNAC to North Carolina policyholders, the Guaranty Association is not liable to North Carolina UNAC policyholders under the Guaranty Act.
3. UNAC has no interest in the deposit made by it in North Carolina for the sole benefit of North Carolina policyholders except in such sums as remain after the sale of the deposited securities and application of the proceeds for payment of all pre-insolvency obligations owed by UNAC to policyholders residing in North Carolina on August 5, 1974.
4. This Court shall retain jurisdiction in order to grant such further supplemental relief based on the declaratory judgment herein rendered, whenever necessary or proper, as by law is provided, and extending to all matters germane to the powers and duties of the Guaranty Association.
5. The Commissioner of Insurance shall promptly proceed to liquidate the deposit made by UNAC for the benefit of North Carolina policyholders and apply the proceeds to meet the pre-rehabilitation obligations owed by UNAC to North Carolina policyholders.
6. The counterclaim of UNAC against the Guaranty Association requesting damages incurred by reason of frivolous and improper acts of the Guaranty Association in commencing this action is hereby dismissed.
*693 The crux of UNAC argument is that any claim against it, or its assets were compromised during rehabilitation in the Indiana Court and the judgment discharging the company's liability for all claims which the court did not allow is res judicata and entitled to full faith and credit as required by the United States Constitution. The authorities cited by UNAC support the proposition that pre-rehabilitation contractual rights that were modified pursuant to a plan of rehabilitation cannot be enforced by resorting to the general assets of the rehabilitated insurance company.
The Guaranty Association contends that the rights of North Carolina policyholders and, through subrogation, the Guaranty Association are not contractual rights and that their claims are statutory rights. They argue that these statutory rights are based upon the laws of North Carolina dealing with deposits made by non-domestic insurance companies for the protection of North Carolina policyholders.
The Guaranty Association is an organization created by statute to which all life, accident and health insurers doing business in North Carolina are required to belong. When an insurance company doing business in North Carolina becomes insolvent, it is the Guaranty Association's duty to see to it that all contractual obligations owed to North Carolina policyholders are fulfilled. Absent the availability of deposits or assets that can be used to meet the contractual obligations of the insolvent insurer, the Guaranty Association must assess its member companies and use those assessments to fulfill the contractual obligations of the insolvent insurer.
G.S. 58-155.66 in describing the purpose of the Guaranty Act states: "To provide this protection, (i) an association of insurers is created to enable the guaranty of payment of benefits and of continuation of coverages . . . ." G.S. 58-155.68, in addressing the construction to be given the Guaranty Act, states: "This article shall be liberally construed to effect the purpose under G.S. 58-155.66 which shall constitute an aid and guide to interpretation." Section 58-155.72(9)(a) of the Guaranty Act specifically contemplates payments by the Guaranty Association for payments of contractual obligations or continuation of coverage and states that the Guaranty Association shall be subrogated to rights against the assets of any impaired insurer for such payments.
The Guaranty Association seeks a judgment declaring the Guaranty Association's right to have UNAC's deposit applied to meet UNAC's obligations to North Carolina policyholders and excluding UNAC from any interest in the deposit except as to any interest that might remain after the deposit is applied to payment of the contractual obligations of UNAC to residents of North Carolina.
G.S. 58-155.69(6) defines "impaired insurer" as:
an insurer which after the effective date of this Article, becomes insolvent and is placed under a final order of liquidation, rehabilitation, or conservation by a court of competent jurisdiction . . .
Thus, despite the fact that UNAC has been rehabilitated, it is an impaired insurer and its defaulted obligations continue to exist for purposes of the Guaranty Act.
G.S. 58-155.78(c) provides that the Guaranty Association is deemed a creditor of the impaired insurer to the extent of assets of the impaired insurer attributable to covered policies, reduced by any amount to which the Guaranty Association is entitled by subrogation.
The Guaranty Association acknowledged its statutory liability to North Carolina UNAC's policyholders with regard to the increase in guaranteed premiums and the default on the return of premium riders allowed by the Rehabilitation Order.
It is undisputed that the deposit made by UNAC is located in North Carolina and is held in trust. It is the manifest intention of the North Carolina Legislature that the title and rights to securities deposited in accord with Article 20, Chapter 58-188.5 et seq. are vested in the Commissioner of Insurance, the Treasurer and the State. *694 Continental Bank and Trust Co. v. Gold, 140 F.Supp. 252 (E.D.N.C.1956). The Indiana Court did not have the necessary personal jurisdiction over the Commissioner of Insurance and the Treasurer. Since UNAC did not hold title to the deposit, it was not an asset of the company subject to the Indiana rehabilitation proceeding. Thus, neither the trust property nor the Commissioner and Treasurer were subject to the judicial jurisdiction of the Court of Indiana. Because the Indiana court lacked jurisdiction of the subject matter and in personam jurisdiction to determine the statutory rights of the North Carolina policyholders in the deposit made by UNAC, the Indiana Court's decision is not entitled to full faith and credit in North Carolina and is not protected by the doctrine of res judicata.
The Guaranty Association will ultimately be required to pay the policyholders pursuant to its statutory liability. Once paid, the Guaranty Association will become subrogated to any rights of these policyholders in the deposit under G.S. 58-155.72(9)(a). Consequently, it may assert those rights at this time in a declaratory action.
Having thus determined that the North Carolina policyholders are protected by the special deposit made by UNAC and also by the statutory liability of the Guaranty Association, we hold that it is proper that the deposit of the defaulting company should first be applied to the loss to the policyholders rather than the Guaranty Association whose members will ultimately be required to pay the remaining claims of the policyholders pursuant to their statutory liability.
In light of the Guaranty Association's assumption of liability with regard to UNAC defaults, it had clearly defined rights in the deposits made by UNAC by its statutory subrogation rights. G.S. 58-155.72(9). It seeks no more than it and the North Carolina policyholders are entitled to under the North Carolina Statutes. The Court declared those rights and in its decision we find no error.
No error.
CLARK and ERWIN, JJ., concur.