Present: Carrico, C.J., Compton, Stephenson, Lacy, Keenan, and
Koontz, JJ., and Cochran, Retired Justice
DAVID H. BENNET, ET AL.
OPINION BY
v. Record No. 950808 CHIEF JUSTICE HARRY L. CARRICO
April 19, 1996
VIRGINIA LIFE, ACCIDENT AND SICKNESS *
INSURANCE GUARANTY ASSOCIATION, ET AL.
FROM THE STATE CORPORATION COMMISSION
This appeal involves application of the provisions of Chapter
17 of Title 38.2 of the Code of Virginia, Code §§ 38.2-1700
through -1721. The purpose of Chapter 17 is "to protect, subject
to certain limitations, policyowners, insureds, beneficiaries,
annuitants, payees, and assignees of life insurance policies,
accident and sickness insurance policies, annuity contracts, and
supplemental contracts against failure to fulfill contractual
obligations due to the impairment or insolvency of the insurers
issuing those policies or contracts." Code § 38.2-1700(A).
To provide this protection, the General Assembly designated
the Virginia Life, Accident and Sickness Insurance Guaranty
Association (the Association), composed of all insurers licensed
to transact the business of insurance in this Commonwealth, "to
enable the guaranty of payment of benefits and of continuation of
coverages." Code §§ 38.2-1700(A), -1702(A). Members of the
Association are "subject to assessments to provide funds to carry
out the purpose of [Chapter 17]." Code § 38.2-1700(A). In the
case of an insolvent insurer, the Association shall "[g]uarantee,
assume, or reinsure or cause to be guaranteed, assumed, or
*
The State Corporation Commission is also an appellee
pursuant to Rule 5:21(f).
reinsured the covered policies of the insolvent insurer," Code
§ 38.2-1704(B)(1), and shall "[a]ssure payment of the contractual
obligations of the insolvent insurer," Code § 38.2-1704(B)(2).
However, not all such policies or contracts are entitled to
protection. As pertinent here, Code § 38.2-1700(C)(5) provides
that Chapter 17 shall not apply to "[a]ny contract or certificate
which is not issued to and owned by an individual, except to the
extent of . . . any annuity benefits guaranteed to an individual
by an insurer under such contract or certificate." This provision
is at the core of the controversy in the present case, and it was
brought into focus when, on December 22, 1994, David H. Bennet and
L. John Fleischmann, Trustees for the Dynamic Systems, Inc.
Savings Enhancement Plan (the Plan), and Roger Nicholas, a
participant in the Plan (collectively, the Plan Trustees), filed a
petition for declaratory relief with the State Corporation
Commission (the Commission).
The petition alleged that Dynamic Systems, Inc. (Dynamic) is
a firm engaged in the business of providing engineering and
management services; that Dynamic maintains the Plan for the
benefit of its employees, who number "94 or more"; and that the
Plan and the trust implementing it qualify under § 401(a) of the
Internal Revenue Code and include a qualified cash or deferment
arrangement under § 401(k). The petition alleged further that the
Plan had purchased certain Guaranteed Interest Contracts (GICs)
from InterAmerican Insurance Company of Illinois (InterAmerican);
that InterAmerican was licensed to transact insurance business in
Virginia and, consequently, was a member of the Association; and
that InterAmerican had become insolvent as that term is defined in
Code § 38.2-1701. Finally, the petition alleged that demand had
been made upon the Association to extend coverage to the GICs but
that the Association had refused the demand and the Commissioner
of Insurance for Virginia had ruled that the GICs were not covered
by Chapter 17 of Title 38.2.
The petition prayed for a declaration that the GICs were
"annuity contracts" entitled to coverage under Code § 38.2-1700(A)
and that the Association was required to guarantee the contracts.
The petition also prayed for an order requiring the Association
to pay the Plan Trustees approximately $1.6 million, representing
the "Contract Value [of the GICs] as of 12/23/91," the date
InterAmerican became insolvent.
The Association moved to dismiss the petition on the ground
that the GICs were excluded from coverage by the terms of Code
§ 38.2-1700(C)(5). The Commission sustained the Association's
motion and dismissed the petition, stating:
From the documents filed by the parties, including
the actual text of the GICs themselves, it is obvious
that these products are not owned by and issued to
individuals, nor do they provide any annuity benefits to
individuals. Thus, there is no basis under which these
investments can be guaranteed by [the Association].
The Plan Trustees are here upon an appeal of right. Va.
Const. art. IX, § 4; Code § 12.1-39. They argue that the statute
in question is remedial in nature and, hence, should be construed
liberally to promote the underlying policy of providing protection
to innocent victims of insurer insolvency. The Plan Trustees
maintain that the Commission's interpretation of Code § 38.2-
1700(C)(5) is both unduly restrictive and inconsistent with the
spirit and fundamental purposes of the statute in question.
The Plan Trustees argue further that, although the Plan and
the trustees hold legal title to the GICs, the Plan participants
"are in every sense the equitable and beneficial owners of the
. . . GICs." These investments, the Plan Trustees say, "were
purchased by the Plan at the express direction of individual Plan
participants using individually identifiable participant
contributions to pay the premiums," the interest of each
participant "was separately accounted for, and individual Plan
participants received periodic statements identifying their
specific interests in the . . . GICs." Furthermore, the Plan
Trustees point out, each participant "directed the application of
funds" and had "individual rights to withdraw money under the GICs
in accordance with the terms of the Plan."
We will assume, without deciding, that the Plan Trustees are
correct in saying the statute in question should be liberally
construed. Even so, we do not think the statute can be stretched
to provide coverage for the claims advanced by the Plan Trustees.
Accordingly, we find that the Commission's interpretation of Code
§ 38.2-1700(C)(5) is neither unduly restrictive nor inconsistent
with the spirit and fundamental purposes of the statute in
question.
Code § 38.2-1700(C)(5) excludes from coverage any contract or
certificate which is not both issued to and owned by an
individual, and nothing in the statutory language permits an
interpretation that a mere beneficial or equitable owner can
satisfy the "issued to" and the "owned by" requirements. Indeed,
such an interpretation is impermissible even under the GICs
themselves. The GICs were issued to the Plan, not the individual
participants, and
§ 4.10 of the Plan provides as follows:
4.10 Trust as Single Fund: The creation of
separate Accounts for accounting and bookkeeping
purposes shall not restrict the Trustee in operating the
Trust as a single Fund. Allocations to the Accounts of
Participants in accordance with this Article IV shall
not vest any right or title to any part of the assets of
the Fund in such Participants . . . .
In addition, the GICs are issued to the Plan as the
"Contractholder," and § 6.7 of the GICs provides as follows:
6.7 Ownership
The Contractholder (and not the Participant,
beneficiary or contingent annuitant) is the sole owner
of all payments, rights, options and privileges granted
or made to any Participant, beneficiary or contingent
annuitant under the provisions of this Contract and is
entitled, without the consent or participation of any
Participant, beneficiary or contingent annuitant, to
exercise such rights, options and privileges and to
receive all such payments at the time payable under the
Plan to the Participant, beneficiary or contingent
annuitant.
Hence, the conclusion is inescapable that the GICs involved
in this case are neither issued to nor owned by individuals. The
petitioners can succeed, therefore, only if the GICs guarantee
"annuity benefits . . . to an individual," within the meaning of
the exception to Code § 38.2-1700(C)(5). In a footnote to their
brief, the Plan Trustees state as follows:
The . . . GICs are themselves annuity contracts
because they are agreements to make periodic or lump-sum
payments and fixed-dollar amounts to the Plan
participants through the Plan. See Va. Code Ann.
§ 38.2-106(1993). As annuity contracts, the . . . GICs
clearly guaranteed annuity benefits to the Plan
participants.
As the Association points out, however, Code § 38.2-106
defines an annuity as an agreement "to make periodic payments in
fixed dollar amounts pursuant to the terms of a contract for a
stated period of time or for the life of the person or persons
specified in the contract," and the GICs involved in this case
simply do not satisfy that definition; they neither provide for
periodic payments nor fix a dollar amount to be paid. Rather, the
GICs provide only for the accumulation of value at a specified
rate of interest and for the withdrawal of the accumulated value
upon certain conditions.
Moreover, while one of the options provided by the GICs
permits withdrawal of accumulated value for the purchase of an
annuity, the withdrawal must be made by the Contractholder, i.e.,
the Plan, not an individual participant. Section 4.1 of the GICs
states:
4.1 Notice of Benefits
Written notice shall be given to the Insurance
Company by the Contractholder whenever any withdrawal is
to be made from the Accumulated Value for the purpose of
providing benefits under the Plan.
Furthermore, the undertaking assumed by the Contractholder
according to the terms of the GICs is to purchase annuities for
participants, upon request. Section 4.2 of the GICs provides:
4.2 Withdrawal to Purchase an Income Annuity
Upon receipt of a notice from the Contractholder to
purchase an annuity under this Contract for a person in
accordance with the Plan, the Insurance Company will
effect the purchase of such annuity by withdrawing from
the Accumulated Value the full consideration therefor,
plus the amount of state premium tax, if any . . . .
An undertaking to purchase an annuity in the future is not a
present guarantee of annuity benefits. Hence, the conclusion is
inescapable that the GICs involved in this case do not guarantee
"any annuity benefits . . . to an individual," within the
contemplation of the exception to Code § 38.2-1700(C)(5).
Board of Trustees v. Life & Health Insurance Guaranty Corp.,
642 A.2d 856 (Md. 1994), cited by the Plan Trustees, is
inapposite. At the time of that decision, the Maryland guaranty
statute had no exclusion similar to Virginia's Code § 38.2-
1700(C)(5). And we are not persuaded by the opinions of the
insurance commissioners of three sister states, cited by the Plan
Trustees in support of their position.
Two subsidiary questions remain, (1) whether the Commission
erred in refusing to consider "certain binding representations
[InterAmerican made] to the Plan participants regarding the GICs
in promotional materials," and (2) whether the Commission erred in
dismissing the petition for declaratory relief filed by the Plan
Trustees without leave to amend. We refuse to consider these
questions. No objection was preserved before the Commission with
respect to either point and no assignment of error touches either
point. Rule 5:21(i).
Finding no error in the proceedings below, we will affirm the
judgment of the Commission.
Affirmed.