v.
AMERIKA SAMOA BANK,
INSURANCE COMPANY OF SAMOA, LA FENIX BOLIVIANA S.A. DE SEGUROS Y REASEGUROS,
Defendants.
High Court of
Trial Division
CA No. 157-96
December 4, 2000
[1] The insurance laws of American Samoa do not provide for
transfer of ownership of insurer’s bonds or statutory deposits, save for
transfers by an insurer to ASG’s Insurance Commissioner, and only then or the
use and benefit of any person injured by the breach of the condition of any
bond.
[2] The statutory deposit,
required to be made by insurers under the AS.C.A. § 29.0302, is not freely
transferable, but is specifically committed to rendering legal obligations
incurred by the principal.
[3] A deposit made by an insurance company as a condition
of its right to do business constitutes a trust fund for the benefit of
the insurer’s policyholders, and for the insurer’s creditors after the claims
of policyholders are satisfied.
[4] A statutory deposit is essentially a trust for the
insured; its establishment and maintenance must be directed towards ensuring
that insurers perform their obligations.
[5] An insurer may assign its statutory deposit to another
insurer, but it must first comply with the proper legal means for establishing
a formal succession of interest. An
assignee insurer is entitled to the statutory deposit of an assignor
insurer only if the assignee insurer has assumed all obligations liabilities
and assets of the assignor insurer, through corporate merger or other lawful
means.
[6] One company’s domestic certificate of incorporation
does not establish an identity between it and another company holding a
separate, local certificate of incorporation.
[7] The laws of
[8] The Insurance Commissioner does not have unbridled
discretionary authority to issue certificates of authority.
[9] All insurers must comply with the specifically
delineated statutory requirements of A.S.C.A. § 29.0302.
[10] The mere fact that a company has ceased to do business
within the state does not warrant full withdrawal of the insurer’s bond. A statutory deposit may only be returned to
an insurer when the Insurance Commissioner is satisfied that all obligations
for which the deposit was made to secure have been paid or are extinguished.
[11] An agent’s knowledge will be imputed to the principal,
when the matter is within the scope of the agent’s authority and with reference
to matters over which the agent’s authority extends.
[12] Where person who effectuated transfer of assets of
insurance company which had deposited trust funds was attorney for first
corporation, and director, officer and attorney for second corporation, second
corporation is deemed to have known of the nature of the transfer and, by
virtue of its affirmative activity, knowledge and acquiescence, will be
estopped in equity from claiming those funds.
[13] Where there is
misappropriation by one party of another’s statutory insurance deposit, in
order to make an illegitimate business seem legitimate, the court will apply
principles of equity to prevent a withdrawal of the statutory deposit so long
as innocent policyholders might be defrauded thereby.
[14] Interest earned on a
statutory deposit belongs to the insurance company for whom the deposit is
made.
[15] Where a bank holds a
certificate of deposit assigned to ASG’s Insurance Commissioner for use as a
statutory deposit in lieu of an insurer’s bond under A.S.C.A. §
29.0302(6), the bank is obligated to exercise reasonable care as bailee of the
deposit, and must use it for its intended purpose.
[16] Bank holding a
statutory insurance deposit held not liable to the owner insurance company for
refusing to allow withdrawal of the funds where no formal evidence or
documentation was proffered to bank regarding the planned purpose of the funds,
ASG Attorney General informed bank his office was investigating a claim for
those funds by a[4ASR3d251]court
appointed liquidator, and insurance company was being investigated by FBI and
AG requested bank not release funds.
Before
Counsel: For Plaintiff, Fiti A. Sunia,
Assistant Attorney General
For Defendant Amerika Samoa Bank, William B.
Reardon
For Defendant Insurance Company of
and Deanna Sanitoa
For Defendant La Fenix Boliviana, Roy J.D.
Hall, Jr, and Brian
M. Thompson
OPINION AND ORDER
Plaintiff American Samoa
Government (“ASG”) initiated this action for declaratory relief on
November 27, 1996, to resolve the status of a $50,000 statutory deposit. The case came for trial on March 10 and 27,
2000. All parties were present by
counsel.
Facts
The funds were held by
defendant Amerika Samoa Bank (“ASB”) until commencement of this litigation, and
were then deposited in the Court’s registry.
Entitlement to the funds is contested by two parties: (1) the Insurance
Company of Samoa, Insurance and Reinsurance, Inc. (“ICS”), previously known as
“La Fenix of Samoa, Insurance and Reinsurance”; and (2) John C. Craft, the
court-appointed Special Deputy Liquidator (“Liquidator”) for La Fenix Boliviana
S.A. De Seguros y Reaseguros, Insurance and Reinsurance, Inc. (“LFB”).
The status of the statutory
deposit depends upon a number of issues complicated by the parties’ variable
arguments and misrepresentations, as well as the greater context of this case
within a scheme of international insurance fraud.
LFB is a foreign corporation
incorporated in
ICS, though it has represented itself as a local
branch of LFB, was established as a separate corporation. Its Articles of Incorporation, dated July 11,
1994, used the name of “La Fenix of Samoa Incorporated, (dba LFS-Insurance and
Reinsurance).” ASG’s Treasurer issued to
it a Certificate of Incorporation under the name of “La Fenix of Samoa” “LFS”)
on November 22, 1994. No provision in the Articles of Incorporation of LFS, nor
any documents presented to this Court, give rise to any indication that LFB and
LFS were parent-subsidiary or sibling corporations.
On November 16, 1994, attorney Ellen Ryan (“Ryan”)
deposited $50,000 with ASB, in the name of LFB, in return for a certificate of
deposit. The certificate of deposit was
assigned to ASG’s Insurance Commissioner.
The $50,000 certificate was thereby established as a statutory deposit
in lieu of the insurer’s bond for the foreign corporation LFB, to obtain and
sustain LFB’s Certificate of Authority.
On October 27, 1994, Ryan, an officer, director and
attorney of ICS and attorney for LFB. was authorized to make the $50,000
deposit by Cheryll Coon (“Coon”), representing LFB. Less than one month later, on November 24,
1994, the United States District Court for the Western District of Missouri
enjoined Coon from “dissipating, encumbering or disposing of specific
enumerated assets that the U.S. Government alleged are subject to forfeiture”
in relation to LFB and other companies. See
On November 25, 1994, the day after Coon was enjoined
with respect to LFB’s assets, LFS’s board of directors resolved to change the
name of LFS to “Insurance Company of Samoa, Insurance and Reinsurance, Inc.”
pursuant to A.S.C.A. § 30.0120. On January
13, 1995, ASG’s Treasurer issued a Certificate of Incorporation in the amended
name. It is noted that until and after this point in time, LFS or ICS,
as an independent corporation, never submitted an application to ASG’s
Insurance Commissioner for a Certificate of Authority to transact insurance
business in
About two months after LFS changed its name to ICS,
aggressive and affirmative steps were taken to shift the insurance identity of
LFB into that of ICS. On January 20,
1995, Ryan wrote a letter to ASG’s Insurance Commissioner, misrepresenting that
ICS was “originally called La Fenix Boliviana Insurance and Reinsurance Inc.,”
but was now incorporated locally. “[M]y
clients wish to emphasize the company as a local entity and, we have since gone
through a change of name,” she stated.
In the letter, Ryan implied that the name of the company LFB was to be
changed on all official documents, including the foreign corporation permit to
transact business, the insurer Certificate of Authority, and the business
license. Based on this letter and other
conversations, and without further apparent investigation, ASG’s Insurance
Commissioner issued a continuance of Certificate of Authority to ICS on January
24, 1995, and a Certificate of Authority on February 2, 1995. Finally, on April 26, 1995, Ryan had ASB
change the name of the $50,000 statutory deposit account from LFB to ICS, still
subject to the assignment to ASG’s Insurance Commissioner. ICS began negotiating insurance contracts and
conducting insurance business in May or June of 1995 and, under the evidence at
least, has continued to conduct insurance business since.
The
ASG moved for summary judgment on February 5, 1997,
joined by ASB and the Liquidator for LFB, on the issue of the separate
identities of LFB and ICS, which this Court denied in an order entered on May
20, 1997.
Discussion
We address four issues:
(1) Whether the $50,000 certificate of deposit in the
account name of ICS and assigned to ASG’s Insurance Commissioner is the deposit
required by statute for LFB or for ICS.
(2) Whether ASG’s Insurance Commissioner has the right
to retain control over the statutory deposit until the existence of any and all
policies issued by either ICS or LFB, and all claims against those policies,
have been determined.
(3) Whether ICS or the Liquidator for LFB is entitled
to the interest earned on the statutory deposit during the period that the
deposit was held by ASB.
(4) Whether ASB is liable to ICS for refusing to
release the statutory deposit to ICS.
A. Statutory
Deposit for LFB or ICS
The first issue concerns whether the $50,000
certificate of deposit is the statutory deposit for LFB or for ICS.
The statutory deposit was originally established in
the name of LFB on November 16, 1994, and. was assigned to ASG’s Insurance
Commissioner in fulfillment of the insurer’s bond requirement in A,S.C.A.
§29.0302(6) for obtaining a Certificate of Authority to transact insurance
business in American Samoa as an insurer.
The name on the account was changed from LFB to ICS on April 26, 1995,
and the certificate of deposit has been in the account name of ICS since
then. It is clear that LFB originally
made the statutory deposit on its own behalf. The question is whether the later
change in the named principal on the statutory account has any substantive
effect on LFB’s ownership of the deposit.
We hold that it does not.
[1-2] As a
matter of law, the AS.C.A. § 29.0302(6) statutory deposit is not transferable
or assignable. The insurance laws of
American Samoa, A.S.C.A. §§ 29.0301 to 29.0324, do not provide for transfer of
ownership of insurer’s bonds or statutory deposits, save for transfers by an
insurer to ASG’s Insurance Commissioner, and only then “for the use and benefit
of any person injured by the breach [of the condition of any [4ASR3d255] bond].” A.S.C.A, §29.0302(6). The provision further declares that the
surety on the bond, or in this case, the bank holding the statutory
deposit, “shall be answerable up to the amount of the [deposit] for all
judgments, decrees, or orders given, made or tendered against the principal on
the [deposit] by the High Court of American Samoa for the payment of money . .
. .”
[3-5]
Relevant case law further affirms our interpretation. It has been variously and unanimously held
that a deposit made by an insurance company as a condition of its right
to do business constitutes a trust fund for the benefit of the insurer’s
policyholders, and for the insurer’s creditors after the claims of
policyholders are satisfied. See,
e.g., Am. United Life 1ns. Co. v. Fischer, 130 F.2d 643 (8th Cir.
1942); Ingram v. Reserve Ins. Co., 281 S.E.2d 16 (N.C. 1981); In re
Lloyds Ins. Co. of Am., 290 N.Y.S. 759 (N.Y. 1936); see also George J. Couch & Ronald A. Anderson, Couch
on Insurance § 22.9 (2d ed. 1984).
The statutory deposit is essentially a trust for the insured; its
establishment and maintenance must be directed towards ensuring that insurers
perform their obligations. The law is
meaningless, and the statutory deposit spurious, if the named principals on the
bond or deposit may be changed, for whatever reason, to allow insurers to evade
judgment. An insurer such as LFB may
assign its statutory deposit to another insurer, but it must first comply with
the proper legal means for establishing a formal succession of interest. An assignee insurer is entitled to the
statutory deposit of an assignor insurer only if the assignee insurer
has assumed all obligations liabilities and assets of the assignor insurer,
through corporate merger or other lawful means. State ex rel. Safeguard Ins.
Co. v. Vorys, 167 N.E.2d 910, 914 (
[6] Though
ICS may have regarded itself as a successor-in-interest to LFB, as a. factual
matter, ICS and LFB remain separate and distinct entities. LFB is a foreign corporation incorporated in
The parties have all raised the possibility of
treating LFB and ICS as a single corporation, given that ICS has represented
itself as such, and that business decisions for both entities seem to have been
made by or through the same persons.
Though this would be convenient for practical purposes, we do not find
sufficient legal basis for holding LFB and ICS to be the same corporation. Neither merger nor other change of corporate
form has occurred to formally establish shared interests between LFB and
ICS. LFB owns no stock of ICS,
and ICS owns no stock of LFB. There is
no evidence of a formal transfer of obligations, liabilities and assets from
LFB to ICS. There is, in short, nothing
to suggest that the companies are affiliated in any parent-subsidiary or
sibling sense, which would in turn trigger evaluation based on alter-ego or
instrumentality theories.[2]
Moreover, even if we were to hold, that ICS had
somehow succeeded LFB’s interests, we still could not authorize release of the
statutory deposit to ICS. Cases such as Lucas
v. Pittsburgh Life & Trust Co. have held that a resultant corporation,
in order to withdraw statutory deposits, must have complied with the
appropriate regulations for conducting insurance business as an insurer. 119 S.E. at 113. In
[7-9] We
cannot authorize ICS to take the statutory deposit for LFB because it does not
qualify as a valid insurer.
Specifically, ICS has never subjected itself to the procedures
delineated by A.S.C.A. § 29.0302 to obtain the three Certificates of Authority
issued to it to transact insurance business in
LFB is the true owner of the $50,000 statutory
deposit. ICS has not been established as
a legal successor-in-interest to LFB, and even if it were, ICS is not a legally
valid insurer. ICS is barred from both
conducting the business of insurance, as well as from taking LFB’s deposit. The
Liquidator is, therefore, entitled to recover the statutory deposit.
B. Retention
of the Statutory Deposit
We have established that the $50,000 certificate of
deposit under A.S.C.A. § 29.0302(6) is a trust for LFB’s policyholders. Who then, is entitled to it, and when?
The Liquidator argues that LFB has not issued
insurance policies within
[10] The
mere fact that a company has ceased to do business within a jurisdiction does
not warrant full withdrawal of the statutory deposit. See Cont’l Band
& Trust Co. v. Gold, 140 F. Supp. 252, 255 (E.D.N.C. 1956); S.
British Ins. Co. v. Younger, 58 F.2d 1049, 1049-50 (S.D.
In this case, the LFB statutory deposit was used by
ICS to obtain authorization to transact business in
[11-12] It
may be argued that LFB, as the true owner of the statutory deposit, need not
oblige its statutory deposit to the policyholders of ICS, an entirely separate
corporation and insurer. However, there
is case law which supports this equitable course of action. In EW Truck
& Equipment Co. v. Coulter, we treated three separate entities as a
single entity to construe a contract, since they held themselves out as
such. 19 A.S.R.2d 61, 66 (Trial Div.
1991). Also, the Appellate Court of
Indiana in Conrad v. Olds held that a true owner may be estopped from
asserting title to deposited securities when he knows of and acquiesces to
their use as a part of a trust fund for the protection of policyholders. 37 N.E.2d 297, 303 (Ind. App. Ct. 1941); see
also Couch & Anderson, supra,
at § 22:109. As the Conrad court also reasoned, an agent’s knowledge
will be imputed to the principal, when the matter is within the scope of the
agent’s authority and with reference to matters over which the agent’s
authority extends. 37 N.E.2d at 303; see
also Mid-Continent Paper Converters, Inc. v. Brady, Ware &
Schoenfeld, Inc., 715 N.E.2d 906, 909 (Ind. App. 1999). In this case, LFB seems not only to have
known of the nature of the transfer, but Ryan, its director, officer, and
attorney, effectuated it. Therefore, due
to its affirmative activity, knowledge, and acquiescence, LFB is estopped from
claiming the securities.
[13] In Niccolls
v. Jennings, where one party’s financing and cooperation masked the other
party’s business with an apparent condition of solvency and enabled the other
party to attract the patronage of customers, the Florida Supreme Court applied
principles of equity to reroute stock assets so as to restore defrauded
customers to their original [4ASR3d259] position. 92 So. 2d 829, 834 (
We have concluded that, as a matter of law, the
statutory deposit belongs to LFB. We now hold that, as a matter of equity, the
statutory deposit is to be held by ASG’s Insurance Commissioner in trust for
the policyholders of both LFB and ICS, the remainder to return to the
Liquidator for LFB. The funds will,
however, remain in the Court’s registry to be disbursed by court order only.
C. Entitlement
to the Interest Earned on the Statutory Deposit
[14] We now
address the corollary issue of entitlement to the interest based on the
statutory deposit account with ASB. Clearly, the interest earned on a statutory
deposit belongs to the insurance company for whom the deposit is made. See Des Moines Mut. Hail & Cyclone
Ins. Ass’n v. Steen, 175 N.W. 195, 195 (N.D. 1919).
We hold that the Liquidator for LFB is entitled to
recover the interest earned on the statutory deposit while ASB held these funds
and paid to ICS. According to Fuimaono,
he twice collected interest on the statutory deposit in ICS’s name, each time in
the amount of approximately $2,000.00.
However, details are not in evidence as to the dates and exact amounts
of any such payments to Fuimaono on ICS’s behalf. We will schedule a hearing, at the
Liquidator’s request, to determine these facts should he decide to pursue this
matter.
D. ASB’s Refusal
to Release the Statutory Deposit
It remains to be determined whether ASB owes damages
to ICS for refusing to release the statutory deposit.
Specifically, ICS contends for damages of two million
dollars due to ASB’s refusal on November 2l, 1996, to release the deposit to
ICS. The issue is whether the nominal
owner of a statutory deposit is entitled to withdraw it, despite having no
legal basis to do so. The short answer
is no. ASB was neither obligated nor
authorized to release the $50,000 to ICS, and ICS is not entitled to damages
based on ASB’s appropriate refusal.
[15] ASB was
under no fiduciary duty to release the statutory deposit to ICS. The certificate of deposit was a
special account deposit, assigned to ASG’s Insurance Commissioner for use as a
statutory deposit in lieu of [4ASR3d260]
an insurer’s bond under A.S.C.A. § 29.0302(6). For such special account deposits, a bank is
obligated to exercise reasonable care as bailee of the deposit, and must use it
for its intended purpose. Bank of Am.
Nat’l Trust & Sav. Ass’n v. Bd. of Supervisors of the
In this case, as we have already stated, the deposit
was established to fulfil the statutory deposit requirement under A.S.C.A. §
29.0302(6), for LFB to obtain a Certificate of Authority to transact business
as an insurer in
[16] ASB was
correct in refusing to release the statutory deposit to Fuimaono, representing
ICS, and Atuatasi, then ASG’s Insurance Commissioner, when they attempted to
withdraw the deposit on November 21, 1996. No formal evidence or documentation was
proffered to ASB regarding the planned purpose of the funds, by which ASB might
have adjudged the legitimacy and seriousness of the withdrawal request. Further, ASB immediately consulted with
the Attorney General’s office, which informed ASB by letter that the office was
investigating a claim for those funds by a court-appointed liquidator, and that
ICS was being investigated by the FBI. The Attorney General requested that ASB not
release the bond to ICS or Atuatasi “without further notice from this office or
order of court of competent jurisdiction.”
The lack of substantiation by Fuimaono and Atuatasi on the one hand, and
the Attorney General’s affirmative advice on the other, confirm that ASB
exercised reasonable care in protecting the deposit as regards its intended
purpose. Second, ICS has never been and
never will be entitled to withdraw the deposit.
We have found LFB to be the owner of the statutory deposit, to which ICS
has no right. ICS’s policyholders are entitled to claim it insofar as they have
been injured by the fraud perpetrated by ICS in falsely holding itself forth as
a properly-endowed, properly-authorized insurer under the laws of
Order
1. ICS shall conduct no further insurance business in
2. ICS shall pay to the Liquidator for LFB the total
amount of all interest earned on the $50,000 statutory deposit that Fuimaono
collected in the name of ICS while ASB held the deposit. The Liquidator should file a [4ASR3d261] motion for an evidentiary
hearing to determine the dates of payments and exact amounts paid by ASB to
Fuimaono acting on ICS’s behalf.
3. ICS’s cross-clam against ASB is dismissed.
4. ASG’s Attorney General and Insurance Commissioner
shall immediately issue public notices to advise the public of the liquidation
of LFB and that neither LFB nor ICS is an authorized insurer in
5. ASG’s Attorney General and Insurance Commissioner
shall investigate to determine who are the policyholders of LFB and ICS what is
the extent of their claims against LFB or ICS on account of their insurance
policies; and if they still have any potential exposure to loss.
6. After 120 days, if no policyholders of LFB or ICS
emerge or are found, then the Clerk of Court shall pay to the Liquidator for
LFB the amount of $52,540.20 representing the statutory deposit of
$50,000 and interest earned on the deposit that ASB transferred to the court’s
registry, along with the interest earned on this amount while held in the
registry.
7. If policyholders for LFB or ICS are identified,
then the entire amount of the funds representing the statutory deposit shall be
retained in the Court’s registry until all claims against LFB or ICS, on account
of the policyholders’ insurance policies are cleared by this Court.
It is so ordered.
[1] A.S.C.A § 29.0302(6) requires that
Any person desiring to transact insurance business in American Samoa as an insurer shall file with the commissioner an application for a certificate stating the class or classes of insurance which it proposes to transact accompanied by the following: . . . a good and sufficient bond . . . [or] in lieu of the bond as required by this section, the applicant may deposit with the commissioner acceptable unencumbered securities or other unencumbered assets of the value of $50,000 as surety subject to the same conditions as the bond . . . .
[2] These theories would enable the Court to “pierce the
corporate veil” and hold a dominating or parent organization liable for the
actions of its subsidiary. The applicable statute is straightforward in
authorizing the Court to hold a parent stockholder liable for bad-faith
disrespect of the corporate form. A.S.C.A.
§ 30.0117 states:
A bad-faith failure to substantially comply with the requirements for the organization of a corporation renders the individual property of the stockholder liable for corporate debts.