Executive Life Insurance Company (CA)

Court Sides With Michigan Association, Says Contracts Are Unallocated

The Michigan Circuit Court for the County of Ingham granted the Michigan Life and Health Insurance Guaranty Association's motion for summary judgment in the matter of Unisys Corporation v. Olson, File No. 97-85841-NZ. Unisys and Core States Bank, the current plan trustee of Unisys Savings Plan and Retirement Plan, filed this declaratory action against the Michigan insurance commissioner and the Michigan guaranty association, claiming that Michigan participants in the Unisys plans, which invested in four ELIC group annuity contracts, were entitled to coverage under the Michigan Guaranty Act.

Unisys asserted that their resident plan participants were the owners, or "beneficiaries, assignees or payees," of these annuity contracts and therefore should be compensated by the association for losses incurred as a result of ELIC's insolvency. The guaranty association denied that it owed any obligations on the basis that the four contracts at issue were unallocated annuities as defined under the statute and that the plan trustee, as the contract holder, was not a Michigan resident.

Plaintiffs and defendants Olson and the Michigan guaranty association filed cross-motions for summary disposition. Following oral argument, the Hon. Carolyn Stell granted the associations motion, denied Unisys' motion and dismissed Unisys' complaint with prejudice. Judge Stell based her decision upon a plain reading of the Michigan Guaranty Act and stated that the ELIC contracts were unallocated under the definition provided by the statutes. Further, the court relied upon such exhibits as Unisys' IRS 5500 tax forms which indicated that the contracts were unallocated annuities. Moreover, the court summarily rejected Unisys "beneficial ownership" argument, again basing this decision on the Michigan statute's definition of unallocated annuities - those "not issued to or owned by an individual" - and referred to numerous exhibits supplied by the defendants that indicated that the non-resident plan trustee indeed was the contract holder.

It is uncertain whether Unisys will file an appeal. Questions regarding this case may be directed to John Colpean at Colpean & Associates, P.C., which represented the Michigan guaranty association in this matter: 517/487-2525. The April 15 order is available on NOLHGANet's Litigation Database at number M10031.

In related news, oral argument was held April 2 in the Unisys v. California Life case. Unisys appealed to the California Court of Appeals (First District) from a trial court ruling in favor of the guaranty association, which held that contracts in question were GICs and were unallocated. James Willcox, counsel for the California association, reported that the hearing before a three-judge panel went well from the association's standpoint. Questions from the judges seemed to indicate a leaning toward a plain language reading of the statute and focused on what they termed "clear intent" of the California statute to exclude all GICs. The parties in this case await the court's decision.

Task Force Chair -- Art Dummer;   Staff Contact - Pacific Standard Life Insurance Company (CA)

FUNDING PACKAGES WERE mailed April 15 to affected guaranty associations. The packages include a brief overview of recent events, payment instructions and a description of the cost elements. Payment from the following guaranty associations is due May 5: Delaware, Georgia, Illinois, Kentucky, Maine, Massachusetts, Montana, Nebraska, North Dakota, South Dakota, Vermont, Virginia and Wyoming,

The Liquidation Trust is scheduled for dissolution May 11. A final accounting will be completed within 60 days and will include all known policy liability changes, actual trust values and supplemental payment benefits through April 30. It is not expected that the final accounting costs will vary significantly from the cost estimates provided recently. Refund checks will be mailed after the final accounting is completed. Detailed policy level reports also will be produced and sent to affected guaranty associations following completion of the final accounting.

Task Force Chair -- Bart Boles;   Staff Contact - Paul Peterson Northwestern Security Life Insurance Co. (NC)

The Federal Court of Appeals for the Fourth Circuit on April 16 issued its decision in the Northwestern Security Life case affirming the trial court's holding that certain deferred federal income taxes on pre-paid premiums constitute administrative expenses entitled to priority payment under the North Carolina liquidation statute. At the hearing in January, the liquidator argued that the taxes at issue do not constitute administrative expenses within the meaning of the state liquidation statute because the taxes were incurred prior to the insolvency (although they accrued post-insolvency) and because payment of the taxes did not constitute the conservation or administration of estate assets within the meaning of the statute. The court rejected this argument, concluding that the taxes had accrued post-insolvency, and cited authority from the North Carolina Supreme Court holding that federal taxes which accrue post-receivership are costs of administration.

Having found that the administrative treatment of these taxes was dispositive in this case, the court made no findings with respect to the government challenges to guaranty association priority or the severability of the state liquidation statute.

  Staff Contact - Joni Forsythe

ETC.

Correction
Last week's Wire failed to note that Linda Becker also is a member of the Centennial Life Task Force. Other members are: Mark Femal, chair, Wisconsin; Bart Boles, Texas; Andrea Bowers, South Carolina; Randy Cox, West Virginia; and William Falck, Florida.

Administrators' Education Steering Committee
In preparation for the June MPC round table discussion on reassessment issues, the Administrators' Education Steering Committee has prepared a survey for guaranty associations to gather information for the program. The survey includes two sections. Part one should be answered by all associations, regardless of whether they have completed the reassessment process, and part two should be answered only by those who have completed the process and have billed member companies or by associations who have completed the calculations. Guaranty association cooperation is much appreciated, as the information will be especially helpful to those who have not completed the process. Please fax completed surveys by April 30 to Paul Peterson, 703/481-5209.

  Staff Contact - Sean McKenna

CALENDAR

April 22 Kentucky Central Asset Management Committee, Lexington, Ky. April 23 NOLHGA Board of Directors, Milwaukee April 30 Seventh ELIC installment payment due to Aurora April 30 Deadline to sign up for June MPC photographs May 5 Pacific Standard payments due May 10 Deadline for June MPC hotel reservations May 12 Joint NOLHGA/NCIGF Legal Committee, St. Louis May 13 NOLHGA Legal Committee, St. Louis

  Staff Contact - Sean McKenna