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Nos.
37663, 37664 Supreme
Court of Missouri 349
Mo. 835; 163 S.W.2d 750; 1942 Mo. LEXIS 415 May
5, 1942 [***1]Rehearing
Denied June 17, 1942. Motion to
Transfer to Banc Overruled July 28, 1942. PRIOR
HISTORY: Appeal from Jackson Circuit Court; Hon. Allen C. Southern, Judge.
DISPOSITION: Reversed. COUNSEL:
James P. Aylward, George V. Aylward and Terence M. O'Brien for appellant
R. E. O'Malley.
(1) The court's jurisdiction as to disbursements was limited to approving
the compensation paid certain employees and, as that compensation had been
approved by orders of court, the making of any surcharge for disbursements was
erroneous. (a) Insurance Code is exclusive.
Secs. 6052-6069, R. S. 1939; State ex rel. Carwood Realty Co. v.
Dinwiddie, [***4]
343 Mo. 592, 596, 122 S. W. (2d) 912; Aetna Ins. Co. v. O'Malley, 343 Mo.
1232, 124 S. W. (2d) 1164; Robertson v. Mo. State Life Ins. Co., 136 S. W. (2d)
362; State ex rel. St. Louis Mut. Life Ins. Co. v. Mulloy, 330 Mo. 951, 52 S. W.
(2d) 469; State ex rel. Mo. State Life Ins. Co. v. Hall, 330 Mo. 1107, 52 S. W.
(2d) 174; O'Malley v. Prudential Cas. & Surety Co., 80 S. W. (2d) 896; State
ex rel. Lucas v. Blair, 346 Mo. 1017, 144 S. W. (2d) 106.
(b) Court's jurisdiction limited to approving compensation paid certain
employees. Sec. 6065, R. S. 1939.
(c) Court orders approved amounts of compensation paid.
(d) Surcharge based upon court's erroneous view that proceeding was a
receivership. Bushman v. Barlow,
328 Mo. 90, 40 S. W. (2d) 637; O'Malley v. Continental Ins. Co., 343 Mo. 382,
121 S. W. (2d) 834; Relf v. Rundle, 103 U.S. 222, 26 L. Ed. 337; State ex rel.
Mo. State Life Ins. Co. v. Hall, 330 Mo. 1107, 52 S. W. (2d) 174; State ex rel.
St. Louis Mut. Life Ins. Co. v. Mulloy, 330 Mo. 951, 52 S. W. (2d) 469.
Robertson, Superintendent, v. Mo. State Life, 136 S. W. (2d) 362; Aetna
Ins. Co. v. O'Malley, 343 Mo. 1232, 124 S. W. (2d) 1164; State ex rel. Carwood
Realty Co. v. Dinwiddie, [***5]
343 Mo. 592, 122 S. W. (2d) 912. (2)
The $ 85,264.44 surcharge was based upon the erroneous conception of the court
below that O'Malley was without authority to attempt to rehabilitate or reinsure
the exchange and was required to commence liquidation upon November 12, 1936,
the date he was placed temporarily in charge.
Sec. 6057, R. S. 1929; Secs. 6052-6069, R. S. 1939; Secs. 6052, 6059,
6061, 6964, R. S. 1939. (3)
O'Malley, a public officer with discretionary powers, having acted in good
faith, was not liable for alleged mistakes in judgment.
(a) O'Malley acted in good faith and honestly.
State ex rel. Ball v. Board of Health, 325 Mo. 41, 26 S. W. (2d) 773;
State ex rel. Mo. State Life Ins. Co. v. Hall, 330 Mo. 1107, 52 S. W. (2d) 174;
State ex rel. St. Louis v. Priest, 152 S. W. (2d) 109; State ex rel. Johnson v.
Clark, 288 Mo. 659, 232 S. W. 1031; St. Joseph v. Farrell, 106 Mo. 437; In re
Moynihan, 332 Mo. 1022, 62 S. W. (2d) 410, 91 A. L. R. 74; Waterman v. Chicago
Bridge & Iron Works, 328 Mo. 688, 697, 41 S. W. (2d) 575, 578; Spotts v.
Spotts, 331 Mo. 917, 922, 55 S. W. (2d) 977, 983, 87 A. L. R. 660, 671; Hartwell
v. Parks, 240 Mo. 537, 545, 144 S. W. 793, 795; State ex [***6]
rel. Douglas v. Reynolds, 276 Mo. 688, 209 S. W. 100.
(b) O'Malley was a public officer with discretionary power.
State ex rel. Mackey v. Hyde, 315 Mo. 681, 286 S. W. 363; State ex rel.
Funk v. Turner, 328 Mo. 604, 42 S. W. (2d) 594; Secs. 6052, 6057, 6058, 6060,
6064, R. S. 1939; O'Malley v. Continental Life Ins. Co., 343 Mo. 382, 121 S. W.
(2d) 834; Relf v. Rundle, 103 U.S. 222, 26 L. Ed. 337; Fairleigh v. Fidelity
Natl. Bank & Trust Co., 335 Mo. 360, 73 S. W. (2d) 248. (c) Having acted in good faith and honestly, O'Malley, a
public officer with discretionary powers, was not liable for alleged mistakes in
judgment as to law or facts. State
ex rel. Funk v. Turner, 17 S. W. (2d) 986; 22 R. C. L. 485-6; Pike v. Megoun, 44
Mo. 491; Reed v. Conway, 20 Mo. 22; Sharp v. Kurth, 245 S. W. 636.
(4) O'Malley was directed by orders of court to pay all of the disallowed
items. Perrin & Smith Printing
Co. v. Cook Hotel Co., 118 Mo. App. 44; Easton v. Houston Railway Co., 38 Fed.
784; Quincy v. Humphreys, 145 U.S. 82, 12 Sup. Ct. 787, 36 L. Ed. 632; Thomas v.
Western Car Co., 149 U.S. 95, 13 Sup. Ct. 824, 37 L. Ed. 663; New York Security
& Trust Co. v. Louisville, E. & St. Louis R. Co., 102 [***7]
Fed. 382; Stokes v. Hoffman House Corp., 167 N. Y. 554, 60 N. E. 667, 53
L. R. A. 870; Sloan & Zook Co. v. Lyons Refining Co., 290 Pa. 442, 139 Atl.
133, 55 A. L. R. 275; Philadelphia Dairy Products Co. v. Summitt Sweets Shoppe,
113 N. J. Eq. 448, 167 Atl. 667; Pennsylvania Co. for Ins. on Lives and Granting
Annuities v. Harr, 320 Pa. 523, 183 Atl. 37; Central Trust Co. v. Continental
Trust Co., 86 Fed. 517, 525. (5) As
there was no evidence that the expenditures disallowed were unnecessary credit
for them should have been given because the presumption (in addition to the
undisputed evidence) was that O'Malley, a public officer, acted lawfully and
properly. State ex rel. St. Louis
v. Priest, 152 S. W. (2d) 109; State ex rel. Mo. State Life Ins. Co. v. Hall,
330 Mo. 1109, 52 S. W. (2d) 174; State ex rel. Johnson v. Clark, 288 Mo. 659,
232 S. W. 1031; State ex rel. Ball v. Board of Health, 325 Mo. 41, 26 S. W. (2d)
773; St. Joseph v. Farrell, 106 Mo. 437; In re Moynihan, 332 Mo. 1022, 26 S. W.
(2d) 410; Waterman v. Chicago Bridge & Iron Works, 328 Mo. 688, 41 S. W.
(2d) 575; Spotts v. Spotts, 331 Mo. 917, 55 S. W. (2d) 977, 87 A. L. R. 660;
Hartwell v. Parks, 240 Mo. 537, 144 S. W. [***8]
793; State ex rel. Douglas v. Reynolds, 276 Mo. 688, 209 S. W. 100. (6)
Nothing could be charged against O'Malley for alleged failure to collect for
services and materials used by other concerns because collection therefor had
been made. St. Louis Gas Light Co.
v. St. Louis, 84 Mo. 202; St. Louis Gas Light Co. v. St. Louis, 11 Mo. App. 55.
(7) The surcharge was erroneous because the undisputed evidence showed
that all of the disbursements were reasonable and proper.
McCune, Caldwell, Downing & Noble, R. B. Caldwell, H. M. Noble and
John W. Oliver for appellant
Central Surety & Insurance Corporation.
(1) The order of surcharge is based upon a completely erroneous theory of
law. Bushman v. Barlow, 328 Mo. 90,
40 S. W. (2d) 637; State ex rel. Hyde, Superintendent of Ins., v. Falkenhainer,
309 Mo. 381, 274 S. W. 722; O'Malley v. Continental Life Ins. Co., 343 Mo. 382,
121 S. W. (2d) 834. (2) The Insurance Code, Sections 6052-6069, Revised Statutes
of Missouri, 1939, provides the exclusive method of handling an insurance
company in financial difficulty. State ex rel. Mo. State Life Ins. Co. v. Hall,
330 Mo. 1107, 52 S. W. (2d) 174; State ex rel. St. Louis Mut. Life Ins.
[***9] Co. v. Mulloy, 330
Mo. 951, 52 S. W. (2d) 469; Aetna Ins. Co. v. O'Malley, 342 Mo. 847, 118 S. W.
(2d) 3; O'Malley v. Continental Life Ins. Co., 343 Mo. 382, 121 S. W. (2d) 834,
343 Mo. 410, 121 S. W. (2d) 850; State ex rel. Hyde, Superintendent of Ins., v.
Falkenhainer, 309 Mo. 381, 274 S. W. 722; State ex rel. Carwood Realty Co. v.
Dinwiddie, 343 Mo. 592, 122 S. W. (2d) 912 (en banc); American Constitution Fire
Assur. Co. v. O'Malley, 342 Mo. 139, 113 S. W. (2d) 795; Aetna Ins. Co. v.
O'Malley, 343 Mo. 1232, 124 S. W. (2d) 1164; State ex rel. Lucas, Superintendent
of Ins., v. Blair, 346 Mo. 1017, 144 S. W. (2d) 106, en banc, certiorari denied
85 L. Ed. 662. (3) The remedial amendments of 1933 changed the duties of the
Superintendent of Insurance by permitting and imposing the duty of
rehabilitation instead of forced liquidation.
Sections 6052-6069, inclusive, Revised Statutes of Missouri, 1939,
enacted, Laws 1933, Extra Session, page 65. Purpose of old sections 5941-5958,
Revised Statutes of Missouri, 1929, before 1933 amendments.
Secs. 5941-5958, R. S. 1929. Purpose
of new sections 6052-6069, Revised Statutes of Missouri, 1939, after 1933
amendments. Secs. 5941-5958, R. S.
[***10] 1929; Secs. 6065-6069, R. S. 1939; Moss v. Kansas City Life
Ins. Co., 96 Fed. (2d) 108. Comparison
of "liquidation" and "rehabilitation." New York Title &
Mtg. Co. v. Friedman, 153 Misc. 697, 276 N. Y. Supp. 72; 15 Fletcher, Cyclopedia
Corporations (1938, Revised Volume), sec. 7359 (52).
Historical background of 1933 amendments.
Commentary on the Chandler Act for the revision of the Bankruptcy Act of
1898, 11 U.S. Code Annotated Supplement 6; Secs. 74, 75, 77, 77B, 78, 79, 80, 81
to 84 of the Bankruptcy Act of 1898, as amended; Ashton v. Cameron Water
Improvement District, 298 U.S. 513; United States v. Bekins, 304 U.S. 27; Wright
v. Vinton Branch of Mountain Trust Co., 300 U.S. 440; Continental Illinois Natl.
Bank & Trust Co. v. Chicago, R. I. & P. Railroad Co., 294 U.S. 648;
Wright v. Union Central Life Ins. Co., 304 U.S. 502; 8 Couch, Cyclopedia of
Insurance Law, sec. 2045-1, of the Supplement thereto.
Report of Superintendent of Insurance of New York, dated May 10, 1935;
Carpenter v. Pacific Mut. Life Ins. Co., 10 Cal. (2d) 307, 74 Pac. (2d) 768,
affirmed 305 U.S. 397; Laws, Extra Session, 1933-34, pp. 49, 136, 140, 144, 149;
State ex rel. Wagner v. Farm & Home Savs. & Loan [***11] Assn., 338 Mo.
313, 90 S. W. (2d) 93. Analysis of Insurance Code, Sections 6052-6069, Revised
Statutes of Missouri, 1939, inclusive. Secs.
6052-6069, R. S. 1939. (4)
Expenditures made by O'Malley for which credit is claimed were entirely proper
and reasonable and his final accounting should be approved in its entirety.
Robertson, Superintendent of Ins. v. Manufacturing Lumbermen's
Underwriters, 346 Mo. 1103, 145 S. W. (2d) 134; Sec. 6065, R. S. 1939; Davis v.
Knox County Savs. Bank, 234 Mo. App. 736, 118 S. W. (2d) 52; Thatcher v. St.
Louis, 343 Mo. 597, 122 S. W. (2d) 915. Salaries
disbursed were for necessary services, were reasonable and should be allowed in
full. Sec. 6065, R. S. 1939; Report
of Alfred M. Best & Co., Inc., of September 16, 1940, and of May 19, 1941.
Rent, telephone and telegraph, traveling expenses of fieldmen and western
office expense were reasonable and necessary.
Sec. 6065, R. S. 1939. (5)
There is no evidence in the record to support either the court's findings or the
order appealed from. Clark,
Boggs, Peterson & Becker, Howard B. Lang, Jr., and William L. Nelson, Jr.,
for respondent.
(1) This action involving the accounting of the Insurance [***12]
Commissioner in a proceeding to liquidate an insurance company is governed by
the Insurance Code, Secs. 5788, 6052-6059, R. S. Mo. 1939, and no expenses can
be incurred by the Insurance Commissioner or allowed by the court which are not
contemplated or provided for by the Code. Secs.
5788, 6052-6059, R. S. 1939; State ex rel. Mo. State Life Ins. Co. v. Hall, 330
Mo. 1107, 52 S. W. (2d) 174; State ex rel. Lucas v. Blair, 346 Mo. 1017, 144 S.
W. (2d) 106. (2) Under the
Insurance Code as amended in 1933, the same now being Sections 6052-6059, R. S.
Mo. 1939, both inclusive, the Superintendent of Insurance has no power or
authority to operate as a going concern, an insurance association placed in his
hands until a decree or rehabilitation has been entered by the court.
Secs. 6057, 6056, 1057, 1056, 6061, 6054, 6055, R. S. Mo. 1939.
(3) Jurisdiction to operate and attempt to rehabilitate the exchange
could be acquired only by compliance with the statutes providing therefor.
The statute not having been complied with, no jurisdiction to operate or
rehabilitate the exchange was acquired even though compliance with the statute
may have been prevented by events and circumstances beyond [***13]
the control of the Superintendent. Secs. 6052, 6056, R. S. 1939; Riggs v.
Moise, 344 Mo. 177, 128 S. W. (2d) 632; In re Buckles, 331 Mo. 405, 53 S. W.
(2d) 1055. (4) All expenses
incurred by O'Malley in the liquidation of the exchange are subject to the
approval of the court and the court properly surcharged him with all items which
it found were not reasonable or were not expended for services or obligations
which O'Malley could lawfully incur. Sec.
6065, R. S. 1939; Sec. 6050, R. S. 1879; Sec. 5788, R. S. 1897; Secs. 6052,
6056, 6057, 6059, 6064, 6061, R. S. 1939; Robertson, Supt. of Ins., v.
Manufacturing Lumbermen's Underwriters, 346 Mo. 1103, 145 S. W. (2d) 134; Davis
v. Knox County Savs. Bank, 234 Mo. App. 736, 118 S. W. (2d) 52; Farmers &
Merchants Bank v. Coleman, 9 S. W. (2d) 549; Thatcher v. St. Louis, 343 Mo. 597,
122 S. W. (2d) 915. (5) The amounts
surcharged were not approved by the court in prior orders.
State ex rel. Lucas v. Blair, 346 Mo. 1017, 144 S. W. (2d) 106.
(6) Upon the record O'Malley is not entitled to credit for any expenses
incurred in the rehabilitation of the exchange.
Sec. 6062, R. S. 1939; Robertson, Supt. of Ins., v. Manufacturing
Lumbermen's [***14] Underwriters, 346 Mo. 1103, 145 S. W. (2d) 134; 53 C. J., p.
372, sec. 604; Clark on Receivership (2 Ed.), sec. 41a, p. 569; Progress Press
Brick & Machine Co. v. Sprague, 65 S. W. (2d) 154.
(7) The evidence in this case is clear that the Superintendent of
Insurance not only had no court order authorizing rehabilitation, but never made
a bona fide effort to rehabilitate. The
record shows his purpose of spending the large sums for operation, solicitation
and maintenance of the business as a going concern was to effect the transfer of
all the business to a new company rather than to rehabilitate the old company.
(8) The trial court committed no error in surcharging O'Malley with the
money shown expended for salaries from November 12, 1936, to August 15, 1937.
Mockowik v. Railroad, 196 Mo. 550, 94 S. W. 256; Stack v. General Baking
Co., 283 Mo. 396, 223 S. W. 89. (9)
The trial court committed no error in surcharging O'Malley for rent expended.
Secs. 6065, 6062, R. S. 1939; Gorman v. Franklin, 117 S. W. (2d) 389;
City of Carondelet v. Desnoyer's Administration, 27 Mo. 36; Myers v. Kennedy,
306 Mo. 268, 267 S. W. 811. (10)
The trial court did not err in surcharging O'Malley upon [***15]
his account for telephone and telegraph charges.
State ex rel. Mo. State Life Ins. Co. v. Hall, 330 Mo. 1107, 52 S. W.
(2d) 174. (11) The court properly surcharged O'Malley with the
traveling expenses of field men and others because the expenses were not
incident to the liquidation and settlement of the affairs of the company.
(12) The court did not commit error in surcharging O'Malley's account
with the expenses of the Portland, Oregon, office. JUDGES:
Westhues, C. Bohling and Barrett, CC., concur. OPINION
BY: WESTHUES OPINION:
[*841] [**752]
On November 12, 1936, appellant, O'Malley, as Superintendent of
Insurance, took charge of the affairs of Manufacturing Lumbermen's Underwriters,
a reciprocal insurance exchange. This
concern will be referred to as M. L. U. On
October 20, 1937, O'Malley was succeeded in office by George A. S. Robertson.
Robertson filed exceptions to the report of O'Malley with reference to
the expenses incurred in handling the affairs of M. L. U.
The trial court surcharged O'Malley with $ 85,264.44 and entered a
judgment against O'Malley and his surety, the Central Surety and Insurance
Corporation. From that judgment two
separate appeals were taken. [***16]
These appeals were consolidated in this court for the reason that they
are in fact only one case.
We find in the brief of O'Malley a short summary of the various steps
taken in the case. It reads as follows:
"O'Malley was Superintendent of the Missouri Insurance Department
from July 1, 1933, until October 20, 1937.
Central Surety and Insurance Corporation was the surety upon his bond as
Superintendent. Manufacturing Lumbermen's Underwriters was a reciprocal
insurance exchange, organized and doing business under the provisions of Article
11 of Chapter 37, Revised Statutes of Missouri, 1939 (Sections 6078 to 6089,
Revised Statutes of Missouri, 1939, inclusive), and having its principal office
at Kansas City, Missouri. Rankin-Benedict
Underwriting Company, a corporation, was attorney-in-fact for this Exchange.
"Pursuant to the provisions of Sections 6052 to 6069, Revised
Statutes of Missouri, 1939, inclusive, on November 12, 1936, O'Malley, as
Superintendent, commenced a proceeding against the Exchange and its attorney in
fact and was authorized by the Court, under Section 6057, Revised Statutes of
Missouri, 1939, to temporarily take charge of the Exchange's property and
receive [***17] its premiums and
other income until final decree. O'Malley took charge as directed. The
proceeding was resisted. After a
trial, and on April 1, 1937, pursuant [*842]
to the provisions of Sections 6056 and 6058, Revised Statutes of
Missouri, 1939, a final decree was entered, dissolving the Exchange and vesting
title to its assets in fee simple in O'Malley as Superintendent for the use and
benefit of the Exchange's creditors, subscribers and policyholders and others
interested in it. Later, on August
14, 1937, finding that the Exchange could not be rehabilitated or reinsured, as
authorized by Sections 6059 to 6065, Revised Statutes of Missouri, 1939,
O'Malley, under Section 6061, Revised Statutes of Missouri, 1939, applied for,
and the court granted an order to liquidate the Exchange.
O'Malley continued in charge until October 20, 1937. On that date, he was
succeeded by George A. S. Robertson as Superintendent.
"O'Malley's accounting covered the entire period he was in charge;
that is, under the temporary order from November 12, 1936, to April 1, 1937, and
under the final decree from April 1, 1937, until October 20, 1937."
[**753] For a
full description of M. L. U. [***18]
and similar organizations and their methods of doing business see In re
Manufacturing Lumbermen's
Underwriters, 18 Fed. Supp. 114; Wysong v. Automobile Underwriters, 204 Ind.
493, 184 N. E. 783, 94 A. L. R. 826, annotations beginning at page 836.
All of the parties agree that the questions involved in this lawsuit are
governed and controlled by the insurance code as amended by the Legislature in
the special session of 1933. [See
Laws, Special Session 1933-1934, pages 66 to 71, now sections 6052 to 6069
inclusive, R. S. Mo. 1939.] The theory of the trial court in surcharging
O'Malley, as evidenced by its judgment and respondent's brief, is that O'Malley
incurred expenses in attempting to rehabilitate M. L. U. and in attempting to
reinsure a portion of its business, when in fact he did not have that authority
because he had not obtained an order from the circuit court authorizing him to
do so. Note respondent's brief
where it is stated:
"Respondent readily agrees that in 1933 the Insurance Code was
amended so as to give the Superintendent power to operate a failing company
placed in his hands and rehabilitate the same or reinsure the risks and that
this power was not granted [***19] by
the Code prior to the amendments in 1933. Respondent
does not and has never contended that the amended Code of 1933 does not give
this power to the Superintendent of Insurance.
Respondent, however, does assert that under the present Code the
Superintendent has no authority to incur expenses
in the operation of an insurance company temporarily placed in his
hands under the provisions of section 1057, and has no power to incur any
expense for the purpose of rehabilitation of said company unless and
until a final hearing has been had in accordance with section 1056,
and the Court has entered its
decree authorizing the Superintendent to effect rehabilitation.
By the very terms of the [*843]
statute itself the powers vested in the Superintendent under the
provisions of section 6061 are not conferred and do not vest in the
Superintendent until the Court, upon final hearing, has found that the
Superintendent is entitled to take charge of the company and has ordered the
Superintendent to attempt to rehabilitate the company."
The above contention of respondent should be kept in mind when reading
and considering the facts and circumstances under which O'Malley acted.
To properly [***20] understand
the various steps taken by O'Malley as Superintendent of Insurance in connection
with M. L. U. it will be necessary to give a history of the case.
We will do this as briefly as circumstances permit. Many of the details
will be omitted and the following cases involving various questions in
connection with M. L. U. may be referred to for further facts: In
re Manufacturing Lumbermen's Underwriters, 18 Fed. Supp. 114, opinion by
Otis, J., in the first bankruptcy proceeding; Robertson, Superintendent of
Insurance, v. Manufacturing Lumbermen's Underwriters, 346 Mo. 1103, 145 S. W.
(2d) 134, involving the question of attorneys' fees.
M. L. U. was organized in the year 1898.
Its subscribers were mainly persons and firms engaged in the lumber
business. It was very successful
and prospered as long as it confined its business to such firms and
corporations. At the beginning of
1936 it was doing business in thirty-four states of the union and five provinces
of Canada. It had accumulated a
surplus of over $ 1,500,000.00. In
the year 1933, through its attorney in fact, Rankin-Benedict Underwriting
Company, it ventured into a new field, that of writing non-participating
policies [***21] on general
business on a straight premium basis. It
was conceded by all parties that this new business venture was the cause of the
difficulties which culminated in ruin for M. L. U.
Differences of opinion arose as to the proper handling of the affairs
between the attorney in fact and the committee representing the subscribers in
M. L. U. During the year 1936, up
to November 12, and before O'Malley took charge, the surplus was reduced from
approximately $ 1,530,000.00 to $ 481,000.00.
Policies were canceled by subscribers who demanded a return of the
unearned premium and their share of the surplus. Four states had suspended the license of the Exchange to do
business. When O'Malley took charge
of M. L. U. an examination of its affairs was being made by the Superintendents
of Insurance of Missouri, Iowa, Illinois and Oklahoma. O'Malley's petition was assigned to Judge Daniel E. Bird.
The court made an order, as contemplated by section 6057, authorizing
O'Malley to take temporary charge of the property of M. L. U. and to receive its
premiums and income. M. L. U. and its attorney in fact were restrained from
further transaction of business. Harold
C. Fielder was appointed by [***22] the
superintendent as agent to take charge of [**754]
the affairs of the company and placed [*844] under a
fifty thousand dollar bond. On
November 16, the attorney in fact filed an application for a change of venue, or
rather an application to disqualify the trial judge.
The court never ruled on this application. November 18, by agreement of the parties, the case was
continued for a final hearing until a report could be had of the examination by
the departments of insurance of the four states above mentioned.
That examination was completed December 21, 1936.
However, prior thereto, on December 1, 1936, the attorney in fact filed a
petition placing M. L. U. in voluntary bankruptcy, which petition was dismissed
by Judge Otis on December 30, 1936. [See
In re Manufacturing Lumbermen's Underwriters, supra.] On January 16, 1937, the
attorney in fact filed a mandamus proceeding in the Supreme Court to compel
Judge Bird to act upon the application to disqualify himself.
This court issued a stop order, which continued in force until February
19, 1937, preventing Judge Bird from making any further orders.
On February 27, 1937, and while the application to disqualify Judge
[***23] Bird was still pending, an
involuntary petition in bankruptcy was filed by a number of creditors of the
Exchange. This proceeding was
dismissed by Judge Reeves on July 7, 1937, and shortly thereafter an appeal was
taken to the United States Circuit Court of Appeals.
On March 2, O'Malley filed an amended petition setting forth the facts as
disclosed by the examination of the insurance departments of the four states
above mentioned. In order to
eliminate the question of the qualification of Judge Bird, O'Malley, on March 3,
filed an application for a change of venue, which Judge Bird granted, and the
case was transferred to Judge Allen C. Southern.
Thereafter, on April 1, 1937, the court entered a decree, as provided for
in sections 6056 and 6058, permanently enjoining the defendants, dissolving the
Exchange and vesting title to the property in the Superintendent of Insurance.
On August 14, 1937, after the second bankruptcy petition was dismissed,
O'Malley filed a petition in the court that he be directed to liquidate the
Exchange. The court so decreed.
Since all of the items surcharged against O'Malley were expended prior to
the liquidation order we will have little to say as [***24]
to what occurred thereafter.
It will be noted that on November 12, when O'Malley was placed in charge
of M. L. U., an examination was in progress to determine the exact financial
standing of the Exchange. The
superintendent therefore could not petition the court for a final decree or for
an order to rehabilitate, reinsure or liquidate. It would have been futile to
have asked for any definite order before that examination was completed, which
was December 21, 1936. In the
meantime bankruptcy proceedings had been filed and a receiver appointed to take
charge of the property. On December
12, 1936, under the foregoing circumstances and while the dispute was being
litigated as to whether the Federal Court or the State Superintendent of
Insurance should have charge [*845]
of the property, both Federal and State courts approved a stipulation
entered into by the parties in litigation which had the effect of a court order
and which read as follows:
"'Pursuant to stipulation of this date, and without prejudice as
recited in said stipulation, R. E. O'Malley, Superintendent of Insurance of the
State of Missouri, and Commerce Trust Company, Trustee, are authorized to pay to
such clerical [***25] and actuarial
employees and assistants and examiners as shall be designated by said R. E.
O'Malley, Superintendent, such portions of compensation as said R. E. O'Malley
or his duly authorized deputies or agents shall direct for such period up to,
but not beyond, December 12, 1936, as he or his said agent or deputy shall
direct, it being understood that said R. E. O'Malley, Superintendent, may, at
his own discretion, determine the employees and assistants to be paid and the
amounts to be paid to them, and may discharge such of them as he deems
unnecessary to employ. Provided,
however, in no event shall said R. E. O'Malley, Superintendent, pay to any such
employee or assistant or examiner compensation at a higher rate than such
employee or assistant had been receiving up to the time said R. E. O'Malley,
Superintendent, took charge, or, as to examiners, higher than customary.
Provided, further, that no compensation shall be paid to any director of
Rankin-Benedict Underwriting Company.'"
On December 23, 1936, the following order was made:
"'Pursuant to a stipulation dated December 12, 1936, and a
supplemental agreement and without prejudice as recited in said stipulation, R.
E. O'Malley, [***26] Superintendent of the Insurance Department of the State of
Missouri, and Commerce Trust Company, Trustee, are authorized to pay such
ordinary expenses, [**755]
including traveling expenses, postage, telegraph, telephone and usual
operating expenses as shall be designated and determined by said R. E. O'Malley,
Superintendent; and it is further ordered that the order of this Court of
December 12, 1936, be modified so as to authorize payment of compensation to H.
L. Fulton and Charles H. Isbell, even though they are directors of
Rankin-Benedict Underwriting Company.'"
On January 8, 1937, the following order was entered:
"'It is Ordered that R. E. O'Malley, Superintendent of the Insurance
Department of the State of Missouri, in charge of the affairs of defendant
exchange, be and he is hereby authorized to pay such ordinary expenses,
including traveling expenses, postage, telegraph, telephone, investigation,
examination and usual operating expenses, as shall be designated and determined
by said R. E. O'Malley, Superintendent.'"
No further orders with reference to the payment of the clerical force
appear until after the order of liquidation made on August 14, 1937.
It will be [***27] noted
from the foregoing that from November 16, 1936, until July, 1937, some action
was pending, either in the Federal [*846]
court or in the State court, which prevented O'Malley from obtaining any
definite order in the State court. A
rehabilitation, reinsurance or liquidation order by the State court while
bankruptcy proceedings were pending in the Federal court would have been futile.
So too the application to disqualify Judge Bird tainted the State court's
jurisdiction. That question was not
settled until O'Malley filed a similar application which the court sustained.
In the meantime what was O'Malley to do?
The courts, both Federal and State, pursuant to stipulation, entered
orders authorizing the superintendent to maintain the business of M. L. U. in
status quo until the disputed questions as to jurisdiction could be settled.
At least the orders may be so interpreted because they authorized
O'Malley to pay the clerical force necessary to maintain the status quo.
Respondent in his brief states:
"Jurisdiction to operate and attempt to rehabilitate the exchange
could be acquired only by compliance with the statutes providing therefor.
The statute not having been [***28]
complied with, no jurisdiction to operate or rehabilitate the exchange
was acquired even though compliance with the statute may have been prevented by
events and circumstances beyond the control of the Superintendent."
This requires an examination of the insurance code to determine just what
are the duties and powers of the State Superintendent of Insurance when an
insurance concern is placed in his charge.
This question must also be considered in the light of the peculiar
circumstances of the present case. At
the outset of this discussion we may state that the record in the case disclosed
beyond doubt, and respondent concedes, that the conditions of M. L. U. were such
that the Superintendent of Insurance was justified in applying to a court for an
order to temporarily take charge of the concern.
The record also disclosed beyond doubt that the affairs of M. L. U. were
such that it should have been rehabilitated; that to effect a rehabilitation it
was advisable, if not imperative, to rid M. L. U. of the general business it had
taken on since 1933 by reinsuring that phase of the business.
We may also make the assertion, without discussion, that the law favors
rehabilitation where [***29] this
can be accomplished. All sections
of the statute will have reference to the 1939 revision. Section 5781 requires the Superintendent of Insurance to be
experienced in matters of insurance. Section
6052 provides:
"Whenever it shall appear to the superintendent of the insurance
department, from any examination made by himself, or from the report of a person
or persons appointed by him, or from the statements of the company, or from any
knowledge or information in his possession, ..."
Then the section sets forth conditions under which the Insurance
Superintendent may act and concludes as follows:
"... said superintendent may institute a suit or proceedings
[*847] in the circuit court
... to enjoin said company from further prosecution of its business, either
temporarily or perpetually, or for a judgment dissolving such corporation or for
both; and after the entry of such decree or judgment, the court upon the motion
of the superintendent of the insurance department may order the liquidation,
settlement and winding up of the affairs of such company or the rehabilitation
of such company as provided in this chapter, together with such other decrees
and orders in connection [***30] therewith
as the court shall deem advisable."
[**756] It will
be noted that the law provides that, "after the entry of such a decree or
judgment, the court upon the motion of the superintendent of the insurance department may order the liquidation, ...
rehabilitation of such company
..." (Italics ours.)
In case the superintendent files such a motion he should be in a position
to present to the court the facts justifying the order sought in such motion.
In this case the examination of the company's financial condition was
being investigated at the time O'Malley took charge and the court properly, upon
the application of the superintendent, continued the case until that examination
was completed. Section 6057
provides as follows:
"If the superintendent of the insurance department shall apply,
either at the time of or after the filing of the petition referred to in section
6052, R. S. of Mo. 1939, the court may, if the court deem it necessary,
authorize him to temporarily take charge of the property of the defendant and to
receive its premiums and other income until a final decree is rendered."
The court in this case entered an order pursuant to the above section
[***31] placing O'Malley in charge of the affairs of M. L. U.
Respondent contends that the superintendent, under an order of court made
as above, cannot do anything except receive the premiums and other income of the
company. Respondent in making that
contention overlooked the fact that the superintendent was not only authorized
to collect the money coming in but he was placed in charge of the property of
that concern. The statute
contemplates the time between the temporary order and a final judgment entered
pursuant to a hearing, to be of very short duration.
It is our opinion that it is the duty of the superintendent, when he
takes charge under an order pursuant to section 6057, to preserve the status quo
until a final decree may be had. Evidently
both the trial court, before whom this case was pending at that time, and the
Federal court were of that opinion when O'Malley, on December 12, was authorized
to pay the employees engaged in taking care of the affairs of M. L. U.
Had it not been for the application to disqualify the trial judge and for
the bankruptcy proceeding O'Malley would have been in a position, on December
21, to have asked the court for a final decree, and also would [***32]
have been free to have asked for rehabilitation and reinsurance
[*848] orders.
In the circumstances no definite order could be obtained.
The superintendent therefore attempted to maintain the status quo while
awaiting the determination of the questions of jurisdiction pending in the
courts. The Supreme Court of
California in Carpenter v. Pac. Mut. Life Ins. Co. of Cal., 74 Pac. (2d) 761, l.
c. 775, had the following to say that may be appropriate:
"Under the statutory plan thus embodied in the Insurance Code, the
state, acting under and within its police power, has provided that the
commissioner, when an insurance company is in financial difficulties, shall
first be appointed by the court as conservator.
As such, it is his duty to operate the company and to try to remove the
causes leading to its difficulties. If
this cannot be done, then he must attempt to rehabilitate the business of the
company as conservator or liquidator, by entering into, with court approval,
either reinsuring or rehabiliation agreements.
Only if this cannot be done and further efforts 'would be futile' should
liquidation be resorted to."
In the same case at page 772 the court said:
"The moment [***33] Carpenter
took possession of the company its right to do business in this and other states
ceased. Obviously if this cessation of business continued for any
appreciable period the intangible assets already mentioned would have been
irreparably lost to the injury of all concerned.
The evidence disclosed that the superintendent did, through the employees
under his charge, have examinations and reports made showing the exact status of
the general business of M. L. U. for the purpose of reinsuring that phase of the
business. He negotiated with the
Pearl Insurance Company for that purpose and later with the Atlas Insurance
Company. Evidence also disclosed
that the employees compiled the necessary information and in a general way
prepared to rehabilitate M. L. U. by ridding it of its termite condition, which
was the general business, leaving to M. L. U. the reciprocal business.
The plan of reinsurance in the Pearl Insurance Company of the general
business in all probability would have been consummated had it not been for the
application to disqualify the trial court and for the bankruptcy proceedings
which caused the cancellation of thousands of policies.
Another unforeseen event [***34] which
threw consternation into the plan was an unusual flood in the Ohio valley which
resulted [**757]
in losses in excess of $ 200,000.00, covered by policies of M. L. U.
The Pearl Insurance Company then withdrew from further considering taking
over the general business. Thereafter the second bankruptcy proceeding further
aggravated the situation and by the time that question was settled M. L. U. was
ready for liquidation.
Now to the question of whether O'Malley, under the above circumstances,
as Superintendent of Insurance, was by virtue of the insurance code and the
orders of court authorized to expend funds
[*849] of M. L. U. for the
purpose of rehabilitating, reinsuring and maintaining as far as possible the
status quo while actions were pending in the courts which prevented any definite
order being made. This question must be answered in the affirmative.
In the first place let it be understood that the insurance department
under the law is an administrative agency having many powers and duties under
and by virtue of the insurance code. The
superintendent is not a mere receiver under court orders. This court expressly
so ruled. [ State ex rel. v. Hall, 330 Mo.
[***35] 1107, 52 S. W. (2d)
174, l. c. 177 (1, 3); O'Malley v. Continental Life Ins. Co. et
al., 343 Mo. 382, 121 S. W. (2d) 834, l. c. 836 (1).] In the latter case
the court said:
"Whatever may be the rule in the case of an ordinary receiver for a
court of equity, we hold that no such special order is necessary to authorize an
appeal by the Superintendent of Insurance because he is not merely an equity
receiver but a trustee authorized to act by the provisions of our insurance
code, subject, of course, to judicial review in many instances.
[ State ex rel. Missouri
State Life Ins. Co. v. Hall, 330 Mo. 1107, 52 S. W. (2d) 174; State ex rel. St.
Louis Mutual Life Ins. Co. v. Mulloy, 330 Mo. 951, 52 S. W. (2d) 469; Relfe v.
Rundle, 103 U.S. 222, 26 L. Ed. 337.]"
The United States Supreme Court many years ago in the case of Relfe v.
Rundle, 103 U.S. 222, l. c. 225, had the following to say concerning the
Missouri Superintendent of Insurance:
"Relfe is not an officer of the Missouri State court, but the person
designated by law to take the property of any dissolved life insurance
corporation of that State, and hold and dispose of it in trust for the use and
benefit of creditors, and other [***36] parties
interested. The law which clothed
him with this trust was, in legal effect, part of the charter of the
corporation. He was the statutory
successor of the corporation for the purpose of winding up its affairs.
As such he represents the corporation at all times and places in all
matters connected with his trust. He
is the trustee of an express trust, with all the rights which properly belong to
such a position. He is an officer
of the State, and as such represents the State in its sovereignty while
performing its public duties connected with the winding up of the affairs of one
of its insolvent and dissolved corporations.
His authority does not come from the decree of the court, but from the
statute."
Of course the superintendent cannot without an order of court
rehabilitate, reinsure or liquidate an insurance concern taken over under the
statute. The court is the forum
where the parties interested may assert their rights and object to any proposal
made by the superintendent. So too with reference to the expenses of
administration. The court wherein
the case is pending is open to anyone who desires to question the reasonableness
thereof. But the superintendent
need [***37] not, while he has an
insurance concern under his control, ask the
[*850] court in advance for
authority to engage the help necessary to do the work incident to the handling
of the affairs of such a company. The
statute, section 6065, says that the superintendent shall at least every twelve
months make a report to the court of all receipts and disbursements.
That same section authorizes the court to require the superintendent to
report more often if the court deems it necessary.
Those provisions certainly contemplate that the superintendent is clothed
with much discretion in conducting and managing the affairs of insurance
companies placed under his control. In
this case the trial court by its judgment held that O'Malley could not take any
steps or expend any money for a clerical force to reinsure or rehabilitate
without first having an order of court authorizing him to do so.
Note the court's conclusion on this point:
"That R. E. O'Malley was not authorized to proceed to reinsure the
risks of Manufacturing Lumbermen's Underwriters.
"That R. E. O'Malley was not authorized to attempt to effect a
rehabilitation of Manufacturing Lumbermen's Underwriters and no order of
rehabilitation [***38] was by the court made."
Section 6064 provides that whenever any decree enjoins a company
perpetually from [**758]
further prosecution of its business, etc., the superintendent may cause a
report to be made showing the condition of the company.
The section further provides that:
"Whenever such report shall show facts warranting, in the opinion of
the superintendent of the insurance
department, the reinsurance of the risks of such company, then, subject to the
approval and direction of the court, said superintendent shall proceed to
reinsure." (Italics ours.)
The section does not make any reference to a court order until the
superintendent has accumulated the facts as to the condition of the company.
It is therefore our conclusion that the superintendent may have that work
done without authority of court.
With reference to rehabilitation it will be noted that statute section
6052 reads, that after the court has entered a judgment as therein contemplated
"the court upon the motion of the superintendent of the insurance
department may order ... the rehabilitation of such company ..." When the
superintendent files such a motion in court he should be prepared to submit
[***39] facts to the court which
would justify the request made. That
can only be done by having a report of the actual conditions of such company.
To ascertain such a condition the superintendent must of necessity employ
accountants and other necessary clerical help. Respondent's position is, that the superintendent cannot
employ any help for such purpose without the approval of court and that the
court must in the first instance fix the compensation of such employees.
Section 6065 governs this question.
Note its reading:
[*851] "He
shall have power and authority, however, in such cases, and through the course
of the whole case, to employ the necessary legal counsel and assistance, and
clerical and actuarial force, subject to the approval of the court as to the
amount of compensation to be paid them, ..."
By an order the trial court in this case placed a limitation on the
amount to be paid the employees in that they were not to be paid more than they
had been paid by the attorney in fact for M. L. U.
The pay roll was expressly approved and ordered paid by the court up to
December 12, and note that O'Malley did not pay any help until ordered to do so
by the court. The statute [***40] authorized the superintendent to employ
the necessary help, and as to their compensation he must have and in this case
did have the court's approval. The
fact that the law contemplates that all expenses be subject to approval of the
court does not mean that the court in the first instance must designate the
number of employees. Respondent
cites section 5788 as authority for the position that the superintendent cannot
employ any help unless designated by the court. The latter portion of that section, found in article 1,
chapter 37, lends some support to the argument.
The sections governing these proceedings are found in article 10, chapter
37. Section 5788 contains general
provisions concerning the Superintendent of Insurance, while the sections we are
dealing with in article 10 cover specifically the proceedings to be followed in
case the superintendent takes over an insurance concern.
We rule that insofar as there may be a conflict the special provisions
should govern.
Respondent argues that the superintendent had no power or authority to
conduct the business of M. L. U. until after the court had directed
rehabilitation, citing section 6061. This
case never reached that stage. [***41] O'Malley
did not conduct the business of M. L. U. except in a very limited degree.
No new business was taken on. All
unwritten policies in the hands of the agents were ordered returned to the
office. O'Malley did attempt to
preserve the status quo of M. L. U. and have its affairs in such a condition
that he could ask the court for an order to rehabilitate and reinsure as soon as
a court vested with jurisdiction could make the necessary orders.
That such a day was long delayed was no fault of the superintendent. When
that day did arrive it was too late to do anything but ask for an order
liquidating the concern. In the
circumstances we are of the opinion that the superintendent did nothing more
than the insurance code and the orders of the court authorized him to do.
The holding and conclusions of the trial court that O'Malley expended
money to conduct the business of M. L. U., to rehabilitate and reinsure without
authority, is therefore erroneous. We
have read many cases upon this subject cited in the briefs before reaching the
above conclusion. We may say here
that this case was exceptionally well briefed.
The [*852]
statute authorizing rehabilitation is new and therefore [***42]
not many cases are to be found directly in point.
The following are the principal cases considered:
[**759] State ex rel. Hyde v. Falkenhainer, 309 Mo. 381, 274 S. W. 722,
which was disapproved in O'Malley v. Continental Life Ins. Co., 343 Mo. 382, 121
S. W. (2d) 834; Relfe v. Rundle,
103 U.S. 222; State ex rel. Mo. State Life Ins. Co.
v. Hall, 330 Mo. 1107, 52 S. W. (2d) 174; Robertson, Superintendent of
Insurance, v. Manufacturing Lumbermen's Underwriters, 346 Mo. 1103, 145
S. W. (2d) 134; State ex rel. Lucas v. Blair, 346 Mo. 1017, 144 S.
W. (2d) 106; Carpenter v. Pac. Mut. Ins. Co. of Cal., 74 Pac. (2d) (Cal.) 761.
Before leaving this subject we wish to make the observation, or rather ask what
would have happened to the affairs of M. L. U. if O'Malley, under the temporary
order of the court entered on November 12, had only collected the premiums and
other moneys coming in, as respondent contends he should have done?
What would have been the rights of the parties with reference to the
thousands of policy cancellations that came to the office the first sixty days
or so? What about the losses which
occurred, including the $ 200,000.00 in the Ohio flood? Suppose further that
[***43] the controversy as to the
jurisdiction of the courts had terminated in January and O'Malley had done
nothing except collect the money coming in.
Needless to say that the affairs would have been in a chaotic condition,
rehabilitation rendered impossible and the purpose of the law defeated through
the dereliction of the Superintendent of Insurance.
We rule therefore that the surcharge against O'Malley cannot be sustained
on the theory that he acted without authority of law.
A number of other points remain in the case which involve purely
questions of fact. The court in its
judgment made the following finding:
"That during the time he was in charge of Manufacturing Lumbermen's
Underwriters as superintendent of insurance, R. E. O'Malley expended large sums
of money from the assets of Manufacturing Lumbermen's Underwriters for the
benefit of persons, companies and associations other than Manufacturing
Lumbermen's Underwriters, all without any legal authority whatsoever."
Following the above general statement the court made specific findings
with reference to salaries, ruling that they were not rendered for the benefit
of M. L. U. and ruling similarly with reference to rent paid [***44]
for quarters not used by M. L. U. and with reference to telephone and
telegraph bills paid by O'Malley for the benefit of others.
The record shows that the Atlas Insurance Company and another concern
occupied small spaces in the quarters rented by the attorney in fact for M. L.
U. The telephones were also used by
these concerns. A complete audit was made of the affairs of M. L. U. under the
direction of the court and under the supervision of the respondent
superintendent. This audit, dated February 23, 1938, [*853] disclosed
that Atlas paid to the superintendent, for the benefit of M. L. U., the sum of $
1,050.00 for rent and $ 226.30 for the use of telephones. There is not one
scintilla of evidence in the record that those amounts were not adequate.
Other small matters were proven which we would be justified in ignoring
but we call attention to one or two. The
attorney in fact for M. L. U. had rented accounting machines that were used by
the superintendent after he took charge. It
was proven that the Atlas also used these machines.
We quote two questions and answers of witness Fielder, which will
demonstrate the insignificance of this item.
"Q. I will ask you if
these [***45] tabulating cards on
direct as well as reinsured business, accounts current of the Atlas Insurance
Company, were not run through the Powers accounting machine rented by M. L. U.
and run by M. L. U. employees? A.
I don't know. The date you mention there were some cards run through after
that time. I don't know what date
they were run through.
"Q. Was there any
compensation paid to M. L. U. by the Atlas? A.
I don't know why there should be. The
work was done at night on the operators' own time."
For some time after O'Malley took charge of M. L. U. four employees of
Atlas, who were not being paid out of M. L. U. funds, had desk space in the
office for which no payment was exacted. Mr.
Fielder, the agent in charge for O'Malley, testified that these employees did
work beneficial to M. L. U. Note
his evidence:
"They assisted in effecting the cancellations as to those policies
in which they were also interested? A.
That is right.
"Q. And assisted in
keeping the records incident to them? A. Yes,
sir.
"Q. And in carrying on
the correspondence incident to them? A.
That is right."
"Q. (Mr. O'Brien) I say
in your judgment was the services which these people [**760]
[***46] were rendering of
value to Manufacturing Lumbermen's Underwriters?
A. Yes, sir.
"Q. Did you pay them
anything? A. I paid them nothing,
no."
Respondent filed an additional abstract of the record which disclosed
that the Superintendent of Insurance succeeding O'Malley in charge of M. L. U.
made a settlement of all claims against Atlas and other concerns which were
alleged to have been favored by O'Malley in the rent and telephone matter.
Accounts were pending with these concerns while O'Malley was in charge.
In the settlement made the superintendent reserved the right to prosecute
the claim made against O'Malley. We
see no reason why the settlement should have contained any such reservation.
O'Malley was not liable unless he knowingly paid out funds for the
benefit of these concerns and the evidence does not justify any such finding.
The amounts were small. For
[*854] example, the rent of
Atlas was for December and January. Rent
was paid by Atlas after January, and before that time, Fielder, who was in
charge for O'Malley, considered the work performed for M. L. U. by employees of
Atlas sufficient to pay the rent. The finding of the trial court that O'Malley
expended [***47] funds of M. L. U. for the benefit of others is therefore not
supported by the evidence.
With reference to the reasonableness of the amount expended for salaries
the evidence leaves room for only one conclusion, that is, that the employees
were not overpaid and that they worked faithfully, often beyond the regular
closing time, without extra pay. We
can visualize the turmoil resulting from various phases of this litigation
involving such a large insurance concern. The
rights of policyholders cancelling policies in such a situation had to be taken
care of and losses occurring had to be investigated.
Agents from all parts of the country and Canada wired for instructions as
to what to do. Many came in person.
The insurance departments of the various states and Canada were demanding
information, and in a number of states proceedings were instituted to liquidate.
One witness described the situation as being a mad-house for weeks after
O'Malley took charge. Certainly it
required as much work to take care of that situation as it did to take care of
the concern when it was not in difficulty.
The trial court made a finding with reference to the salaries paid from
November 12, 1936, [***48]
to August 15, 1937, when the liquidation order was made.
The order reads as follows:
"The court further finds that O'Malley has failed to prove what, if
any, of the sums expended for salaries from November 12, 1936, to August 15,
1937, were reasonable in amount and were expended for the benefit of and in the
handling and settling of the business of Manufacturing Lumbermen's Underwriters.
The court therefore finds that during said period from November 12, 1936,
to August 15, 1937, the sums expended for salaries and for which credit is
claimed were not reasonable, were not necessary and were not beneficial in the
handling and settling of the business of Manufacturing Lumbermen's Underwriters,
and credit therefor is refused upon this accounting."
The trial judge before whom the case was pending, by an order on December
12, 1936, expressly authorized O'Malley to pay the employees their salaries up
to that date. Certainly O'Malley
should not now be surcharged with the money paid pursuant to that order.
Yet the trial court in this case surcharged O'Malley with every cent that
was thus paid out. Taking into
consideration the circumstances under which O'Malley was laboring let us [***49]
see if the amount paid for salaries seems unreasonable.
Up to November 12, 1936, the monthly pay roll had been approximately $
26,000.00. During the first month
under O'Malley it was approximately $ 16,000.00.
In January it was $ 10,000.00 and in February $ 8,900.00.
There was a gradual reduction from then to July, 1937, when it was $
2,860.00. The same is true as to
[*855] the item of rent. The
court found that the sum of $ 350.00 per month, from November 12, 1936, to
October 19, 1937, should be allowed. The
sum actually paid out was $ 10,868.25. The attorney in fact for M. L. U.
occupied two floors in the Fidelity building under a lease at a rental of $
1,845.00 per month. The office equipment was owned by the attorney in fact and
had been pledged as security for the rent. This equipment was used by the
superintendent and no extra rent was paid therefor. It will be noted that if O'Malley had continued to pay rental
as specified the amount would have been approximately $ 20,000.00.
The rent was reduced from time to time and one of the floors was released
when it was no longer needed. No
evidence was introduced that suitable and adequate office space and equipment
[***50] could have been obtained at
a less rental.
[**761] The
entire surcharge in this case can have no basis except upon the theory that the
Superintendent of Insurance had no authority under the law to rehabilitate M. L.
U., maintain its status quo or reinsure the so-called general business without
first going to the trial court and obtaining specific authority so to do.
It is respondent's theory that no matter how honestly O'Malley may have
acted in dealing with the affairs of M. L. U., he had no legal authority to act
as he did and therefore he must be surcharged with the expenses thus incurred.
This, as we see it, is an erroneous theory. As we pointed out the Superintendent of Insurance has certain
powers and duties under the insurance code as a state officer and is not merely
a receiver appointed by the circuit court.
We say without hesitation that had it not been for the unwise attempt of
certain parties to place M. L. U. in bankruptcy and otherwise hinder the actions
of O'Malley by applying for a change of venue, rehabilitation of M. L. U. would
have been an accomplished fact within a very short time after the superintendent
took charge. That this was not
accomplished was [***51] not
O'Malley's fault and he and his surety should not be made the victim.
The judgment is reversed. Bohling
and Barrett, CC., concur. PER CURIAM: -- The foregoing opinion by Westhues, C., is adopted as the opinion of the court. All the judges concur. |
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