Chandler v. Jorge A. Gutierrez, P.C.

Citations: 906 S.W.2d 195; 1995 WL 509215Docket: 03-94-00683-CV

Court: Court of Appeals of Texas; October 11, 1995; Texas; State Appellate Court

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The Court of Appeals of Texas addressed the appeal by Preston J. Chandler, Jr. and his professional association against the summary judgment favoring Jorge A. Gutierrez, P.C. (as special deputy receiver for Empire Casualty Company) and J. Robert Hunter (Commissioner of the Texas Department of Insurance) in their roles as receivers for the insolvent Empire Casualty Company. The case revolves around Chandler’s failure to timely file a proof of claim with the Receiver, despite being unaware of certain claims until after the filing deadline of September 30, 1989. 

Chandler had previously filed a claim related to a known lawsuit, which was partially approved. However, subsequent lawsuits from former patients concerning silicone gel breast implants emerged in the early 1990s, some of which fell under the coverage of Chandler’s policies with Empire. In December 1992, Chandler notified the Receiver of these lawsuits and sought additional coverage. He submitted a new proof of claim on March 9, 1994, which was rejected by the Receiver due to its late filing. 

The trial court, upon reviewing cross-motions for summary judgment, upheld the Receiver's rejection of Chandler's claim, leading to Chandler's appeal. He contended that the trial court erred in granting the Receiver’s summary judgment and denying his motion for partial summary judgment. The appellate court affirmed the trial court's judgment, supporting the Receiver's position regarding the filing deadline.

Article 21.28 of the Insurance Code mandates that claims against insolvent insurance companies in receivership must be filed with the receiver by a deadline established by the receivership court. While proof of claim forms may be submitted after this deadline, they must be filed within one year of the court order setting the deadline; otherwise, they will be excluded from any distribution of receivership assets. Chandler acknowledges that his second proof of claim was filed late but contends that the Receiver should not bar his claim based on its tardiness. He presents several arguments: 

1. Late filing does not affect the claim's status as a "covered claim" under the Guaranty Act.
2. The filing deadline pertains only to claims the claimant was aware of during the filing period.
3. Late filing may be excused if the claimant was unaware of the claims, constituting impossibility of performance.
4. Late filed claims should relate back to timely filed claims.
5. Late filed claims can amend claims that were filed on time.

The document explains that two statutes govern the proceedings: Article 21.28, which outlines the responsibilities of receivers, and the Guaranty Act, which creates a fund for covering claims against impaired insurers. Chandler argues that the Guaranty Act does not impose a filing deadline for covered claims, suggesting the existence of two separate claims filing processes: one with a limitation period for receivership assets and one without for Guaranty Act claims. However, the text emphasizes that Article 21.28 requires timely filing and that the Guaranty Act operates alongside it, without superseding the established timeline for claims submission.

The Guaranty Act, in conjunction with Article 21.28 of the Insurance Code, mandates that the receiver handle covered claims in the same manner as all other claims, as directed by the receivership court. This means that covered claims must be filed against the receivership estate through its receiver, with all claims, including covered claims, subject to the same filing deadlines. The Guaranty Act aims to provide additional funds for the protection of holders of covered claims. 

Chandler contends that the filing deadline should not apply to claims of which the claimant was unaware before the deadline, arguing that the term "claim" does not encompass unknown rights. He asserts that the receivership court's directive targeted individuals with known claims and that the Receiver's interpretation fails to protect policyholders like himself, who may face claims post-deadline. Chandler suggests that his proposed alternative—a blanket claim for all potential future liabilities—would complicate receivership processes and contradict the Receiver's purpose of asset conservation. 

Ultimately, the legislative intent should be discerned from the entire act, allowing for the interpretation of terms to align with the overarching purpose of safeguarding policyholders' rights and managing the liquidation or rehabilitation of insolvent insurers. Article 21.28 outlines the procedures necessary for concluding receivership proceedings, asset disposal, and distribution.

Provisions in article 21.28 establish a claims filing deadline reflecting legislative intent to limit the receiver's obligation to accept claims after a specified date. This deadline is designed to protect policyholders who submit timely claims by preventing the dilution of funds due to late claims, thereby facilitating the efficient distribution of an insolvent insurer's assets. The statute does not accommodate claims unknown to the claimant prior to the deadline or allow for unknown claims to be filed afterward. Although this ruling may disadvantage certain claimants, such as Chandler, who are unaware of potential claims by the deadline, the statute does not provide remedies for such circumstances. Comparisons with other jurisdictions show a similar stance on the finality of claims deadlines. Article 21.28 only allows late filings under limited conditions and does not permit extensions for equitable reasons, asserting a need for finality in liquidation proceedings. Chandler also raises constitutional challenges against the claims filing deadline, arguing it violates open courts, due process, vagueness, contractual obligations, and equal protection provisions under both Texas and federal law. However, these arguments do not alter the court's stance on the enforceability of the filing deadline.

Chandler argues that the claims filing provisions of article 21.28 infringe upon the open courts provision of the Texas Constitution by potentially barring his claim. This provision asserts that individuals injured in their land, goods, person, or reputation have the right to a remedy through the law. To establish a violation, a claimant must demonstrate (1) the existence of a cognizable common law cause of action restricted by a statute, and (2) that the restriction is unreasonable or arbitrary in relation to the statute's purpose. Chandler believes that without the claims filing deadline imposed by article 21.28 and the Guaranty Act, he could pursue a breach of contract claim against Empire. However, it is concluded that the limitations imposed are neither unreasonable nor arbitrary when considering the protective purpose of the statutes for policyholders with insolvent insurers. The statutes aim to provide a structured process for claims and ensure the finality of receivership proceedings, which typically last no longer than eight years. Additionally, even if Chandler were allowed to pursue his claim, the likelihood of recovery would be minimal without the Fund.

Chandler also contends that these provisions violate his due process rights under both the Texas and U.S. Constitutions. He asserts that due process requires notice and an opportunity to be heard. However, it is determined that the provisions do not deprive him of procedural due process, as he is entitled to a trial de novo regarding the Receiver's rejection of his claim. Chandler has not been denied necessary notice or a meaningful opportunity to contest the rejection of his claim, thereby not constituting a due process violation.

The due process clause of the federal constitution, akin to the Texas Constitution's article I, section 19, imposes limitations on state legislative authority regarding substantive due process. Substantive due process requires that laws must not be unreasonable, arbitrary, or capricious, and the means of the statute must have a substantial relation to its objectives. A law is deemed arbitrary if its social necessity does not justify the restrictions imposed on rights. In the absence of fundamental rights violations, a rational basis for the statute, even if not the actual reason for government action, is sufficient for compliance with substantive due process. 

The claims filing deadline in article 21.28 serves the purposes of the Guaranty Act, facilitating claims processing and timely liquidation of receivership estates, which is in the interest of all policyholders and claimants. The deadline does not unreasonably hinder Chandler's right to present claims or pursue a breach of contract against Empire, indicating no violation of substantive due process.

Regarding vagueness, a statute must clearly define actions to avoid due process violations. Chandler argues that article 21.28 and the related court order are vague because they do not specify that he must file blanket claims for future suits before the deadline. While it is acknowledged that the statute does not explicitly require this, it is not considered vague, as it only mandates the filing of known claims. The statute does not imply or suggest the necessity for blanket or contingent claims, but allows for unliquidated claims with accrued rights at the onset of delinquency proceedings. Thus, the filing provisions of article 21.28 are clear and not unconstitutionally vague.

Chandler contends that the implementation of article 21.28 and the court's order setting a claims filing deadline deprived him of remedies for his contractual rights regarding coverage under Empire's policies related to breast implant litigations. He argues this constitutes an impairment of his insurance contracts, violating both the Texas and United States Constitutions. However, the court concludes that the constitutional provisions against impairment of contract do not apply here, noting that the claims processing system established by article 21.28 aims to assist claimants like Chandler in recovering funds amid the insolvency of an insurance company. The deadline for claims does not impair obligations under a contract already breached due to Empire's insolvency.

Chandler also claims that the claims bar provisions of article 21.28 violate equal protection rights, asserting there is no reasonable basis for penalizing occurrence liability policyholders. The court clarifies that since the classifications do not involve fundamental rights or suspect classifications, the rational basis test applies, requiring that the statutory classification be rationally related to a legitimate state interest. The court finds that the restrictions serve a legitimate interest in timely liquidating receivership assets and concludes that Chandler has failed to prove the claims filing system is arbitrary. Consequently, the trial court's granting of the Receiver's summary judgment motion is upheld, affirming that Chandler's claim is barred by the established claims filing deadline.

The cause is governed by the Insurance Code as amended through the 1987 legislative session, with citations to the 1987 laws where substantive differences exist. A covered claim is defined as an unpaid claim of an insured that falls within the policy coverage limits and arises from an impaired insurer. Recent legislative changes have set a deadline for filing covered claims with the Association, which now has the authority to process these claims, indicating that a filing deadline was unnecessary when the Association lacked such power. The Association may file as a claimant for reimbursement from the receivership estate for payments made to impaired insurers. The statute allows for the filing of unliquidated claims—those with accrued rights but undetermined liability or amounts—distinguishing them from contingent claims discussed in the Middleton case, which did not address the implications for timely filed claims on liquidation proceedings. In jurisdictions where guaranty associations process claims, late filers may receive relief from the receivership but could be denied payments from the guaranty funds. In Texas, since the receiver processes covered claims for the Association, timely filing is required, aligning with practices in other jurisdictions.

Chandler's assertion that the time-bar provision penalizes inaction on rights lacks supporting evidence and is dismissed due to the importance of finality in receivership proceedings. The Fourteenth Amendment prohibits states from depriving individuals of life, liberty, or property without due process. In contrast, the Texas Constitution's due course provision is considered broader in scope. Both constitutions contain similar clauses protecting against laws that impair contract obligations, interpreted similarly by courts. Additionally, while the Texas Constitution guarantees equal rights for all individuals in a social compact, the federal Constitution ensures equal protection under the law.