On appeal from the Superior Court of New Jersey, Chancery Division, Mercer County.
Approved for Publication February 7, 1997.
Before Judges Muir, Jr., Kleiner, and Coburn. The decision of the court was delivered by Muir, Jr., J.A.D.
The opinion of the court was delivered by: Muir
The decision of the court was delivered by
This appeal is one discrete facet of the extensive litigation emanating from the potential insolvency of Mutual Benefit Life Insurance Company (MBL). Confronted with a drastic reduction in capital surplus created by poor quality investments and overconcentration in real estate assets that experienced precipitous declines, MBL's Board of Directors consented to MBL's takeover by the Commissioner of Insurance.
On July 16, 1991, Judge Levy signed a consent order with temporary restraints naming the then Commissioner of Insurance the Rehabilitator of MBL pursuant to the Life and Health Insurance Rehabilitation and Liquidation Act (RLA). N.J.S.A. 17B:32-31 to -91. The order vested the Commissioner with all powers authorized by the RLA and, among other things, generally restrained insureds from withdrawing funds held by MBL pursuant to policies, annuities, and other contracts. An effect of the order was to preclude policyholders' efforts to withdraw funds following media disclosures concerning MBL's tenuous capital surplus position. A company with asset book value of nearly $14 billion in 1991, MBL experienced $500 million in withdrawals in the first half of 1991, with $500 million more predicted if the restraints had not issued. The withdrawals left MBL's capital surplus perilously low.
This appeal focuses on the failed efforts of California Institute of Technology (Caltech) and one of its professors, Edward H. Greenberg, to withdraw their respective annuity funds from MBL just prior to the entry of the July 1991 restraining order. Caltech had a group annuity contract with MBL to fund an annuity taxable in accordance with 26 U.S.C.A. § 403(b). During a period of time shortly before entry of the order, Caltech unsuccessfully sought to withdraw the entire annuity contract amount, $30 million. Professor Greenberg also unsuccessfully sought to withdraw his individual portion of the Caltech annuity. Both, after the entry of the order, filed claims with the Rehabilitator seeking withdrawal of their annuity funds. The Rehabilitator, pursuant to the RLA, which had an effective date of July 28, 1992, in concert with representatives of the insurance industry and an association of MBL policyholders, created a rehabilitation plan for MBL. Consonant with the plan, the Rehabilitator rejected the claims of Caltech and Professor Greenberg.
Judge Levy, as part of his comprehensive opinion sustaining the plan as modified, also rejected the claims of Caltech and Professor Greenberg. With the rehabilitator appealing the plan modifications, Caltech and Professor Greenberg cross-appeal from that part of the ensuing judgment that rejected their application for withdrawal of their full annuity funds. We affirm that portion of the ensuing judgment barring the withdrawals by Caltech and Professor Greenberg.
The RLA supplanted the Uniform Insurers Liquidation Act. N.J.S.A. 17B:32-1 to -30 (repealed 1992). The RLA's predominant purpose is the protection of the interests of insureds, claimants' creditors, and the public generally through, among other things, improved methods of rehabilitating insurers and enhanced efficiency and economy of liquidation in the event of rehabilitation failure. See N.J.S.A. 17B:32-31. Consistent with the rehabilitation purpose, N.J.S.A. 17B:32-43e provides in part:
If the rehabilitator determines that reorganization, consolidation, conversion, reinsurance, merger or other transformation of the insurer is appropriate, he shall prepare a plan to effect such changes. Upon application of the rehabilitator for approval of the plan, and after such notice and hearings as the court may prescribe, the court may either approve or disapprove the plan proposed, or may modify it and approve it as modified. Any plan approved under this section shall be, in the judgment of the court, fair and equitable to all parties concerned. If the plan is approved, the rehabilitator shall carry out the plan.
The RLA also creates a scheme for distribution of assets. Eight categories are created with the claims of the preceding class to be paid in full before members of the next class receive any payment. N.J.S.A. 17B:32-71a. Policyholders fall within Class 3, after Class 1 administrative expenses and Class 2 wage claims. All members of a class are to be treated equally with no subclasses created within any class. Ibid.
The Rehabilitator submitted a plan to Judge Levy for approval. The plan includes a Rehabilitation Agreement that centers on the liquidation of MBL and the transfer of all its assets and liabili-ties to Mutual Benefit Life Assurance Corporation (MBLAC), a wholly owned, but inactive, life insurance company subsidiary of MBL. The overall design of the plan is to rebuild the company so it can pay all policyholder claims and accumulate enough surplus to ...