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decided: June 16, 1989.




John G. Milakovic, Thomas A. Beckley, Beckley & Madden, Harrisburg, for petitioner.

Craig J. Stuadenmaier, Spencer G. Nauman, Jr., David C. Eaton, Nauman, Smith, Shissley & Hall, Harrisburg, for respondent Pa. Dental Service Corp., d/b/a Delta Dental of Pa.

Heidi B. Hamman Shakely, Asst. Counsel, Theodie L. Peterson, Chief of Litigation, Linda J. Wells, Chief Counsel, Victoria A. Reider, Deputy Chief Counsel, Harrisburg, for respondent Ins. Dept.

Craig and Barry, JJ., and Kalish, Senior Judge.

Author: Craig

[ 126 Pa. Commw. Page 629]

The Pennsylvania Department of Insurance and Pennsylvania Dental Service Corporation (Delta Dental) raise preliminary objections to Pennsylvania Dental Association's (PDA) Complaint for Declaratory and Other Relief. Because we sustain the department's preliminary objections regarding this court's jurisdiction over this dispute, we need not address the department's other objections or Delta's preliminary objections.

The department objects to this court's jurisdiction, arguing alternatively that: (1) the department is not an indispensable party; (2) the department has exclusive jurisdiction; (3) PDA failed to exhaust administrative remedies; (4) the complaint fails to allege a ripe controversy between PDA and the department; and (5) PDA did not serve the Attorney General with the complaint. We will only address

[ 126 Pa. Commw. Page 630]

    the department's first argument, that it is not an indispensable party.

The pleadings indicate that Delta is a professional health service corporation as defined in Chapter 63 of the Insurance Code, The Professional Health Services Plan Corporations Act, 40 Pa. C.S. § 6302. Delta was formed in the 1960's with money PDA provided. PDA is the Pennsylvania arm of the American Dental Association. On March 1, 1973, the department informed Delta that Delta had reduced, or was reducing, Delta's surplus position because of operating losses. In response to the department's recommendation that Delta strengthen its surplus position, Delta asked PDA for additional funds.

PDA sent a letter to Delta on May 31, 1973 regarding contributions to surplus, which stated in part:

At the meetings of the House of Delegates [of PDA] and in meetings of the Board of Trustees, mention was made of [Section 809] which has been used as a model by the Insurance Commissioner to permit advances to be shown as contributions to surplus rather than debts. From these discussions, it was learned that under certain conditions, interest could be paid on these advances; provided that both the repayment of principal and the payment of interest be made only out of surplus earnings of the Corporation and with the prior approval of the Insurance Commissioner . . . .

[ 126 Pa. Commw. Page 631]

It is intended that if the conditions set forth in this letter are acceptable to [Delta] and are approved by the Insurance Commissioner that they will constitute a contract of [PDA] to advance the sum of $350,000. The said sum shall bear interest at the average rate paid each year on passbook savings accounts by banks in the City of Harrisburg, Pennsylvania, but not to exceed 10% a year. Interest shall be payable (1) only in those years in which the operations of [Delta] result in an increase in earned surplus and the interest must be paid only out Page 631} of the earned surplus . . . .; and (2) only at the time and in the amount approved by the Insurance Commissioner of Commonwealth of Pennsylvania. [Delta] agrees to use its best efforts to secure approval for the payment of interest, when permitted by law, under the foregoing terms in this agreement. (Emphasis added.)

Delta asked the department to review PDA's proposal. In a letter dated June 18, 1973, Andrew Whitman, a Deputy Insurance Commissioner, stated that the department would use Section 809 of the Insurance Company Law, Act of May 17, 1921, P.L. 682, as amended, 40 P.S. § 919, as a "guideline" for the deposit and repayment of surplus contributions to Delta, and would approve the advances if made in accordance with Section 809 and the terms laid out in PDA's letter as follows:

Interest [can] be paid on the surplus contribution provided that both repayment of principal and interest be made only out of surplus earned in the year of repayment and with prior approval of the Insurance Commissioner.

I might point out that the contribution is not a loan to the company since its repayment is subordinated to any other claims against the corporation, and interest may not be accumulated, and neither interest nor principle [sic] may be repaid except out of surplus which is earned in the year of repayment.

Delta and PDA entered into an agreement on August 10, 1973, identical to the May 31 letter PDA sent to Delta, under which PDA would provide Delta with capital funds. In accordance with that agreement, PDA advanced to Delta: $311,000 on September 7, 1973; $39,000 on October 2, 1973; $100,000 on February 1, 1975; and, $40,000 on January 27, 1976.

Delta, after accepting these advances, issued certificates for each advance reciting conformity with the principles of section 809, ...

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