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WILLIAM J. SHEPPARD v. PENN STATE MUTUAL INSURANCE COMPANY (05/28/75)

decided: May 28, 1975.

WILLIAM J. SHEPPARD, INSURANCE COMMISSIONER OF THE COMMONWEALTH OF PENNSYLVANIA,
v.
PENN STATE MUTUAL INSURANCE COMPANY, EVAN C. STINEMAN, SR., EVAN C. STINEMAN, JR. AND HARRY A. FORNWALT, APPELLANTS



Appeal from the Order of the Insurance Commissioner in case of In the Matter of: Penn State Mutual Insurance Company, Evan C. Stineman, Sr., Evan C. Stineman, Jr., and Harry A. Fornwalt.

COUNSEL

Robert J. Demer, with him Thomas R. Balaban and Shaffer, Calkins & Balaban, for appellants.

James D. Keeney, Assistant Attorney General, with him Andrew F. Giffin, Acting Chief Counsel, for appellee.

President Judge Bowman and Judges Crumlish, Jr., Kramer, Wilkinson, Jr., Mencer, Rogers and Blatt. Opinion by Judge Crumlish, Jr. Concurring and Dissenting Opinion by Judge Mencer.

Author: Crumlish, Jr.

[ 19 Pa. Commw. Page 328]

Before us is an appeal from an adjudication and order of the Commonwealth of Pennsylvania, Department of Insurance (Department) made pursuant to Sections 308, 314 and 320 of the Insurance Company Law of 1921, Act of May 17, 1921, P.L. 682, as amended, 40 P.S. §§ 429, 437, 443 and Section 639 of the Insurance Department Act of 1921, Act of May 17, 1921, P.L. 789, as amended, 40 P.S. § 279, which required Penn State Mutual Insurance Company (Penn State) to pay a penalty of $3,540.00 ($10.00 per day) for failure to file an annual statement in violation of Section 320 of the Insurance Company Law, and which removed Evan C. Stineman, Sr., Evan C. Stineman, Jr., and Harry A. Fornwalt as officers and directors of any insurance company authorized to do business in the Commonwealth. The order also revoked the insurance agent's licenses of Appellant Evan C. Stineman, Jr.

Separate citations and notices of hearing were issued by Department to each of the four Appellants. The four matters were consolidated for the purpose of public hearing held in Harrisburg, May 22-23, 1973. Following Department's order, each of the three officers and Penn State appealed to this Court and simultaneously petitioned

[ 19 Pa. Commw. Page 329]

    for supersedeas. Department filed a motion to quash the petition for supersedeas. On September 20, 1974, Judge Blatt granted a supersedeas. Following Department's petition for reconsideration of the grant of the supersedeas and a hearing, Judge Blatt reaffirmed the grant of supersedeas. The merits of the appeal are now before us.

Appellants raise four arguments for our disposition:

1) Does the Insurance Commissioner have authority under Section 320 of the Insurance Company Law of 1921, 40 P.S. § 443, to impose forfeitures through an administrative hearing?

2) Where an insurance company timely files its annual statement pursuant to Section 320, 40 P.S. § 443, but such statement contains inaccuracies which are corrected in futuro, can the Insurance Commissioner determine this to be an invalid filing in light of the inaccuracies?

3) Can the Insurance Commissioner, on the basis of a violation of Section 320, 40 P.S. § 443, remove officers and directors pursuant to Sections 308 and 314, 40 P.S. §§ 429, 437 and revoke an insurance agent's license under Section 638, 40 P.S. § 279?

4) Is there substantial evidence to support the adjudication of the Insurance Commissioner?

After careful and extensive consideration of the voluminous record in this case, we hold that Department action of removal of officers and license revocations was justified, but can find no basis for the imposition of the monetary forfeiture.

I. Penn State Forfeiture

The cornerstone about which the forfeiture determination turns is Section 320, 40 P.S. § 443. That section states:

"Every stock and mutual insurance company, association, and exchange, doing business in this Commonwealth, shall annually, on or before the first day of March, file in the office of the Insurance Commissioner a statement which shall exhibit its financial

[ 19 Pa. Commw. Page 330]

    condition on the thirty-first day of December of the previous year, and its business of that year and shall, within thirty days after requested by the Insurance Commissioner, render such additional statement or statements concerning its affairs and financial condition as the Insurance Commissioner may, in his discretion, require. The Insurance Commissioner shall furnish to each of the insurance companies, associations, and exchanges blanks, in such form as he may adopt, for their statement; and he may make such changes, from time to time, in the form of the same as shall seem to him best adapted to elicit from them a true exhibit of their financial condition. Insurance companies of foreign governments, doing business in this Commonwealth, shall be required to return only the business done in the United States, and the assets held by and for them within the United States for the protection of policyholders therein.

"Any company, association, or exchange, which neglects to make and file its annual statement, or other statements that may be required, in the form or within the time herein provided shall forfeit a sum not to exceed one hundred dollars ($100) for each day during which such neglect continues, and, upon notice by the commissioner, its authority to do new business shall cease while such default continues.

"For wilfully making a false annual or other statement required by law, an insurance company, association or exchange, and the persons making oath to or subscribing the same, shall severally be punished by a fine of not less than five hundred dollars ($500) nor more than five thousand dollars ($5,000). A person who wilfully makes oath to such false statement shall be guilty of perjury."

A simple reading of this section makes it apparent that the Legislature sought to achieve four basic objectives by this enactment. First, a date for filing the annual

[ 19 Pa. Commw. Page 331]

    statement is established. That date is March 1 of each year. Second, the annual statement is to be reflective of the company's financial position as of the preceding December 31. Third, the section imposes a forfeiture on "any company, association, or exchange, which fails to file an annual statement." The forfeited sum is not to exceed $100.00 per day for each day the company is delinquent. Fourth, and finally, Section 320 allows for a fine of not less than $500.00 nor more than $5,000.00 to be imposed upon any insurance company, association, exchange or person who wilfully makes a false statement by making oath to or subscribing same. The section also permits perjury to be found against one wilfully making oath to such false statement.

Penn State was ordered by Department to pay, as a penalty for failure to file its annual statement in the form required, the amount of $3,540.00 representing $10.00 per day for 354 days computed over the period March 1, 1972, the required filing date, to February 16, 1973. Penn State argues that since it filed, be it an inaccurate filing, within the time prescribed, i.e., March 1, that there has been no failure to file within the meaning of Section 320. The first relevant portion of the section states "[a]ny company . . . which neglects to make and file its annual statement . . . in the form or within the time herein provided shall forfeit a sum not to exceed one hundred dollars ($100) for each day during which such neglect continues." (Emphasis added.) We read this legislative pronouncement to be directed exclusively toward late filings or filings undertaken upon exchange blanks of unapproved form. This language does not attempt to control inaccurate financial data contained in a statement executed upon proper forms and filed in a timely fashion.

It could be argued that the forfeiture imposed was premised on the second portion of Section 320 imposing penalties but such an assertion is unfounded. That portion of the section reads, "[f]or wilfully making a false annual

[ 19 Pa. Commw. Page 332]

    or other statement required by law, an insurance company, association or exchange, and the persons making oath to or subscribing same, shall severally be punished by a fine of not less than five hundred dollars ($500) nor more than five thousand dollars ($5,000)." The penalty imposed did in fact fall within these limits ($3,540.00), but Department apparently relied on the forfeiture provision of the section in that the penalty was measured "per day" as opposed to by a lump sum amount. Further, the second penalty provision providing for a lump sum penalty, is the provision directed to false and inaccurate filings, and has been held to constitute a criminal penalty and enforceable by ordinary criminal procedures. Commonwealth v. O'Leary, 168 Pa. Superior Ct. 569, 79 A.2d 789 (1951).

Since Department has relied on the imposition of a forfeiture for neglect to file in proper form, and since we find that there was no untimely filing and no unapproved form used in that filing, we cannot sustain the forfeiture.

II. Removal of Officers and Directors

Section 314 of the Insurance Company Law, 40 P.S. § 437, after discussing election and powers of various officers of the insurance companies states:

"Any person chosen, either annually or to fill a vacancy, as president, secretary, treasurer, or for any other office provided for in the bylaws, shall continue to serve in such office unless the insurance commissioner, after such investigation as he deems proper, shall determine that the responsibility, character, and general fitness for the business of such individual are not such as to command the confidence of the public, and to warrant the belief that the business of the company will be honestly and efficiently conducted in accordance with the intent and purpose of this act. Any adjudication by the insurance commissioner pursuant

[ 19 Pa. Commw. Page 333]

    to this section shall be subject to the provisions of the 'Administrative Agency Law'. . . ." (Emphasis added.) (Citations omitted.)

Section 308 of the Insurance Company Law, 40 P.S. § 429 states in relevant part:

"Any stockholder or member elected to the post of director or trustee shall continue in office unless the insurance commissioner, after such investigation as he deems proper, shall determine that the responsibility, character, and general fitness for the business of such individual, are not such as to command the confidence of the public and to warrant the belief that the business of the company will be honestly and efficiently conducted in accordance with the intent and purpose of this act. . . ." (Emphasis added.)

Harry A. Fornwalt, Evan C. Stineman, Sr., Evan C. Stineman, Jr. were removed as officers and directors of Penn State and any other insurance company authorized to do business in the Commonwealth pursuant to these two sections. These Appellants argue that alleged violations of Section 320, which in this instance are the making of an oath or subscribing to a false statement, should not ipso facto mean that these officers and directors are unfit to continue in office. In effect, they argue that there is nothing in the wording of Section 320 which makes officers be absolute and unconditional guarantors of the complete accuracy of all annual statements.

Prior to seeing whether these Appellants' conduct warrants removal under Section 308 and 314, it is necessary to see just what errors and inaccuracies were present in the statement. Department's long, extensive and well-written adjudication contains the necessary information as follows:*fn1

[ 19 Pa. Commw. Page 334]

Summary of Errors in the 1971

Penn State Annual Statement

ASSETS

NET OVER-

REPORTED ACTUAL STATEMENT

Agent's Balances $2,223,395.39 $1,448,879.11 $774,516.28

Mortgage Loans 39,349.04 12,427.34 26,921.70

Cash and Bank

Deposits 593,983.49 591,885.49 2,098.00

Stock of Financial Fire

& Cas. Co. 885,625.00 482,325.00 403,300.00

$1,206,835.98

Less Adjustment

(Finding of Fact

15(b)) ...


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