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SAFEGUARD MUT. INS. CO. v. PENNSYLVANIA

March 8, 1974

SAFEGUARD MUTUAL INSURANCE COMPANY
v.
COMMONWEALTH OF PENNSYLVANIA AND HERBERT S. DENENBERG, INSURANCE COMMISSIONER


Green, J.


The opinion of the court was delivered by: GREEN

GREEN, J.

 I.

 BACKGROUND

 The history and background of the instant litigation is complex by reason of the numerous related actions which Safeguard Mutual Insurance Company, plaintiff herein, has initiated in the State Courts and the Federal Courts for the Eastern District of Pennsylvania and the District of Columbia. *fn1" A complete narration of all the actions is not necessary. However, a brief discussion of the background of the case is appropriate.

 A. The record before us reveals that on April 12, 1967, David O. Maxwell, in his former capacity as Insurance Commissioner of the Commonwealth of Pennsylvania, issued a suspension order pursuant to Section 502 of the Insurance Department Act of May 17, 1921, P.L. 789, as amended (40 Purdon's Statutes § 202), declaring plaintiff Safeguard Mutual Insurance Company, "to be in such condition that its further transaction of business will be hazardous to its policyholders, to its creditors, and to the public," and prohibiting Safeguard from transacting further business "without prior written approval of the Insurance Commissioner of the Commonwealth of Pennsylvania." On the same day, the then Insurance Commissioner filed in the Common Pleas Court of Dauphin County, Pennsylvania, a petition for liquidation of Safeguard. In that suit, Commonwealth ex rel. Maxwell v. Safeguard Mutual Insurance Co., 91 Dauph. 305 (1969), Safeguard challenged the constitutionality of the provisions under which it was suspended.

 While the State Court action was pending, Safeguard commenced suit in Federal Court on April 14, 1967, challenging the constitutionality of 502, 40 P.S. § 202 under the due process clause of the Fourteenth Amendment. See, Safeguard Mut. Ins. Co. v. Comwlth. of Pa. ex rel. Maxwell, 321 F. Supp. 996 (E.D. Pa. 1970). There, plaintiff alleged that the action by then Insurance Commissioner, David O. Maxwell, in issuing the April 12, 1967, suspension order was "illegal, malicious, arbitrary, capricious and an unlawful exercise of the powers of the Insurance Commissioner's office." Plaintiff requested an injunction both pendente lite and perpetual, enjoining the Insurance Commissioner from restraining plaintiff's transaction of business. A three-judge court was convened and, after a hearing, it was ordered on May 31, 1967, that all proceedings in the Federal Court be stayed "until the final determination of the proceedings" in the Common Pleas Court of Dauphin County. The three-judge panel considered that such an important question involving state regulation of insurance should preferably be decided by the Courts of the State which adopted the statute, in the proceeding then pending, in which factual elements might play an important role.

 The Common Pleas Court on September 25, 1969, entered a nisi order in which it denied the Commonwealth's petition for the appointment of a statutory liquidator and granted Safeguard's petition to vacate the suspension order. Numerous exceptions were filed, which the Court dismissed on April 14, 1970. It did not rule on the constitutionality of the statute since it granted relief on factual grounds.

 Safeguard complains of the delay of the Dauphin County Court in disposing of the case. Judge Swope made this comment in regard to the time required:

 
"With respect to the specific grounds upon which the Commonwealth relies, this case is one of first impression. The record is more complex and voluminous than those usually brought before this Court. The record of testimony taken at the hearing and comprising approximately 3900 pages, required 35 days or parts of days in its construction. In addition to the notes of testimony, there are a total of 113 exhibits, many of which are lengthy and intricate. . . . The Company filed a 170 page written brief. The Commonwealth also filed a brief which is 86 pages in length. In addition, although concededly at the direction of the Court, the Company submitted 647 Requests for Findings of Fact and 328 Requests for Conclusions of Law, a total of 975 separate requests, each of which must be disposed of separately in this Opinion. The above requests of the Company are encompassed in a document 321 pages in length. To these must also be added the Commonwealth's 96 Requests for Findings of Fact and 33 Requests for Conclusions of Law, or a total of such Requests from both sides numbering more than 1100. The foregoing delineation of the extraordinary proportions of the entire record in this case is set forth not because it will aid materially in the disposition of the issues necessary to our decision. By setting forth these details, we intend merely to illustrate the sheer magnitude of the task which has confronted us. The same consideration prompts us to make reference here, at least in part, to the related proceedings involving C. M. Clark Insurance Agency, Inc. ("Clark"), a corporation closely associated with Safeguard, wherein the Commissioner, prompted by Clark's refusal, sought in an action in equity brought before this Court to enforce his right to examine Clark's books and records as a necessary aspect of the instant proceedings against Safeguard. Likewise for the incidental petition for allowance of interim counsel fees filed by the attorneys for the Company in the midst of hearing, not yet disposed of, and for the sister actions in the Federal Courts which were begun and pursued both by Clark and the Company and in which they sought immediate disposition by a three judge court of the constitutional issues raised by the Company in the case presently before us.
 
Additionally, from the inception of this case, Clark has been to the Supreme Court of Pennsylvania once on appeal and Clark and Safeguard each went once to the Federal Courts for injunctive relief during the trial. In addition, Safeguard, since the date of argument, has been to the Supreme Court of Pennsylvania twice and, we are informed, has also returned twice to the Federal Courts in addition to one excursion to the Supreme Court of the United States. We have thus been compelled to attempt deliberation of this extremely lengthy and complicated record while surrounded by a veritable storm of collateral actions which have served us as a persistent source of diversion from the principal task with which we have been confronted, that being, simply stated, to dispose of the matters which have been brought to issue directly before us by appropriate opinion and order.
 
FINDINGS OF FACT
 
We have disposed separately of each of the approximately 750 individual requests for findings which were submitted by the parties. Those actions, specifically granting or denying each request, are contained in a listing which we have designated Schedule "A" and which, in order not to burden this Opinion unnecessarily, will not be set forth in the body hereof but will, instead, be filed together with the Opinion. The above referred to Schedule "A", comprising 32 pages, is hereby specifically made a part of this Opinion by reference. For the same reason and also to avoid needless repetition, we incorporate herein, by reference and in their entirety, the Requests for Findings of Fact of each of the parties as heretofore filed and submitted to the Court and which remain of record in this case."

 During the course of its 38 page opinion, the Dauphin County Court stated:

 
"In conclusion, while we are of the opinion that the Commonwealth demonstrated in one instance that Safeguard violated the law, insofar as it issued policies of insurance to its officers without the payment of premiums, it nevertheless failed to establish that the Company's condition was otherwise hazardous. We are further of the opinion that the showing of an unlawful operation engaged in by the Company which involves a merely technical violation of law within circumstances as limited as those here present without the showing of anything more may not properly be taken as a sufficient basis for the Court to order the Company's dissolution and liquidation under the provisions of the insurance laws of this Commonwealth.
 
We are satisfied, however, that the Commissioner's action in suspending Safeguard on April 7, 1967 was a prudent one, embarked upon only after a careful examination of such information as was available to him at that time and in the reasonable belief that such action was mandatory upon him in light of the provisions of Section 502 of the statute." (emphasis added)

 91 Dauph. at 341-342.

 Several times during the pendency of the State Court action in Dauphin County Court, plaintiff moved unsuccessfully to dissolve the stay order of the three-judge panel. After the decision of the Dauphin County Court, Safeguard, alleging continued misconduct on the part of the Insurance Commissioner, filed a fifth motion to dissolve the stay, which was denied. Safeguard M.I. Co. v. Commonwealth of Pa. ex rel. Maxwell, 313 F. Supp. 888 (E.D. Pa. 1970). In denying plaintiff's sixth motion to dissolve the stay, the three-judge panel consisting of the Honorable Judges, Freedman, Circuit Judge, John W. Lord, Chief District Judge, and Fullam, District Judge, in a per curiam opinion, filed June 30, 1970, stated:

 
"We do not deem it appropriate to dissolve our stay order at this time. The remedy for any illegal or malicious action by the Insurance Commissioner lies in a suit in the state courts or before a single district court judge. The attack on § 502 based upon the new factual allegations may support a new three-judge court proceeding, but does not render appropriate the dissolution of our stay order."

 Safeguard Mut. Ins. Co. v. Comwlth. Pa. ex rel. Maxwell, 321 F. Supp. at 997 (E.D. Pa. 1970). Subsequently the panel dismissed the action (C.A. 42510) as moot "without prejudice to any other actions presently pending between plaintiffs and the Insurance Department and/or its present or former agents and employees." (See Order dated August 3, 1971). *fn2"

 B. Prior to the aforesaid dismissal, Safeguard commenced the instant suit, C.A. No. 70-1969, on July 17, 1970, against the Commonwealth of Pennsylvania and George F. Reed, then Insurance Commissioner, by filing a "Complaint and Application for Designation of Three-Judge Court under Title 28 U.S.C. Sections 2281 and 2284 and Application for Injunctive Relief." Most of this 36 page pleading concerns circumstances surrounding the suspension order issued on April 12, 1967, by former Insurance Commissioner, David O. Maxwell. For various reasons, plaintiff claims that the action of then Insurance Commissioner, David O. Maxwell, "in issuing the injunction-like suspension order on April 12, 1967, was unconstitutional and in violation of the 14th Amendment of the United States Constitution . . ."

 The complaint also sets forth a multiplicity of accusatory assertions concerning the supposed intentions of George F. Reed, who succeeded David O. Maxwell, as Insurance Commissioner. The complaint concludes that all of the conduct of the Insurance Commissioner "hereinabove described in the complaint was initiated, planned and conducted pursuant to an unlawful and unconstitutional modus operandi, scheme, design, conspiracy or misalliance of the former Insurance Commissioner (David O. Maxwell) . . . for the purpose of taking the property, assets and goodwill of the plaintiff from it in violation of the 14th Amendment . . .". Complaint para. 50. Plaintiff has also minutely detailed in the first half of its complaint the alleged problems encountered by it in the Dauphin County Court and complains that the action in that court was unconstitutional.

 The basic thrust of plaintiff's complaint is that former Insurance Commissioner Reed, through his authorized agents, has unlawfully and maliciously used various provisions of the Insurance Acts in an effort to circumvent the order of the Dauphin County Court that the suspension order be vacated. The complaint expresses a concern that the Insurance Commissioner is preventing plaintiff from resuming and operating its insurance business. Accordingly, plaintiff is essentially seeking to have a three-judge court convened, as well as, inter alia, have the Court issue an injunction restraining defendants from interfering with plaintiff's reinstatement to transact the business of insurance. Plaintiff further requests the Court to declare all of the Statutory Regulations of Insurers in Pennsylvania "unconstitutional and/or declare the State's application of said acts to the plaintiff in the instant matter an unconstitutional application thereof . . ." Complaint p. 36.

 Defendants moved for dismissal of the instant action pursuant to Rule 12(b) of the Federal Rules of Civil Procedure. In support of their motion, defendants advanced various grounds, some of which are essentially as follows:

 1. The complaint fails to state a claim against defendants upon which relief can be granted.

 2. Improper venue.

 3. Failure to follow procedures set forth in 28 U.S.C. § 2284(2).

 4. The Eleventh Amendment prohibits suits against the Commonwealth of Pennsylvania.

 5. The issues involved in the case are moot.

 6. The insurance statutes are constitutional.

 7. Plaintiff has an adequate remedy in Commonwealth Court of Pennsylvania and thus the Federal Court ...


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