40 P.S. 221.16(C) Interpretation

Section 516(c) of Article V provides:

If it appears to the rehabilitator that there has been criminal or tortious conduct, or breach of any contractual or fiduciary obligation detrimental to the insurer by any officer, manager, agent, broker, employe, or other person, he may pursue all appropriate legal remedies.

In Foster v. Peat Marwick Main & Co., 138 Pa. Commw. 147, 587 A.2d 382 (Pa. Cmwlth. 1991), the statutory rehabilitator for Mutual Fire, Marine & Inland Insurance Company (Mutual Fire) filed a complaint against Mutual Fire's auditors on behalf of Mutual Fire's insureds, policyholders, and creditors.

The auditors filed preliminary objections, arguing, inter alia, that Section 516(c) only authorized the rehabilitator to file lawsuits on behalf of the insurer--Mutual Fire.

The auditor thus sought dismissal of the claims the rehabilitator brought on behalf of insureds, policyholders, and creditors.

Although Section 516(c) only expressly refers to the rehabilitator's authority to pursue legal remedies "on behalf of the insurer," the Court rejected the auditor's restrictive reading of Section 516(c):

To assume that Section 516(c) precludes the Rehabilitator from bringing actions on behalf of policyholders and other creditors is to ignore the mandate of Section 501 of Article V, requiring us to liberally construe the Article to effectuate its purpose, plainly stated therein, which is "to protect the interests of insureds, creditors and the public generally."

The Rehabilitator is thereby authorized to take action--including legal action--to insure the protection of policyholders, among others.

Section 516(c), read in the context of the entire article and construed in pari materia with Section 501, does not limit the Rehabilitator to claims asserted by Mutual Fire's corporate body, as Peat Marwick would have us hold. Peat Marwick, 587 A.2d at 385.