Martin Ins. Agency, Inc. v. Prudential Reinsurance Co., 89-3602

• Decision Date: 29 August 1990
• Docket Number: No. 89-3602,89-3602
• Citation: 910 F.2d 249
• Parties: MARTIN INSURANCE AGENCY, INC., and International Assurance, Inc., Plaintiffs-Appellants, v. PRUDENTIAL REINSURANCE COMPANY, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 249

910 F.2d 249

MARTIN INSURANCE AGENCY, INC., and International Assurance, Inc., Plaintiffs-Appellants, v. PRUDENTIAL REINSURANCE COMPANY, et al., Defendants-Appellees.

No. 89-3602.

United States Court of Appeals, Fifth Circuit.

Aug. 29, 1990.

James R. Logan, IV, Russell M. Cornelius, Cornelius, Sartin & Murphy, New Orleans, La., for plaintiffs-appellants.

M. Lizabeth Talbott, Galen S. Brown, New Orleans, La., for defendants-appellees.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before THORNBERRY, GEE, and BARKSDALE, Circuit Judges.

THORNBERRY, Circuit Judge:

Martin Insurance Agency, Inc. ("Martin") appeals a district court order dismissing its action against the appellees, Prudential Reinsurance Co. and six New York Insurance Exchange syndicates. The appellees were reinsurers for the now insolvent Transit Casualty Company ("Transit") on a particular group insurance policy, and Martin brought this action against them for the reimbursement of claims Martin had paid out under that policy. We affirm the district court because, under the Uniform Insurers Liquidation Act ("UILA"), the proper forum for Martin's claims for the reinsurance proceeds is the Missouri court that is adjudicating Transit's liquidation proceedings.

FACTS AND PROCEDURAL HISTORY

Martin, an insurance agency located in the state of Louisiana, undertook in 1979 to write physical damage insurance coverage for members of the Wally Byam Caravan Club, a club for owners of Airstream trailers. From 1979 to 1982, Martin insured the club members through Lloyds of London. Beginning in 1982 Martin insured the club members through Transit, an insurance company organized and domiciled in the state of Missouri.

In connection with this insurance coverage, Martin executed two contracts with Donald F. Muldoon & Co., a managing general agent of Transit: an Insurance Management Agreement and a Claims Service Contract. The Management Agreement gave Martin limited authority to issue Transit policies to Wally Byam Club members. The Management Agreement also conditioned the coverage by Transit on Transit's purchase of reinsurance to cover the Wally Byam account. ¹ The Claims Service For the period of January 1 to December 31, 1983, Transit, through an intermediary, obtained facultative reinsurance for the Wally Byam policy ² from Prudential Reinsurance Co. ("Prudential") and several New York Insurance Exchange syndicates: Transit Casualty Syndicate, Inc. (now Lancer Syndicate, Inc.), Pruco Syndicate, Inc., John Street Syndicate, Inc., Essex Syndicate, Inc., and C U Syndicate, Inc. The appellees reinsured Transit in varying percentages totalling 30% of the risk, ³ with Transit retaining 10% of the risk. Because of its prior relationship with Lloyds, Martin had placed 50% of the reinsurance coverage with Lloyds of London's reinsurers, and Martin retained 10% itself. The London reinsurers' certificates allowed for the direct payment of proceeds to Martin.

Contract authorized Martin to adjust and settle certain claims made under the Wally Byam policy. None of the appellees was a party to either of these contracts.

The reinsurance coverage by the New York Insurance Exchange syndicates was evidenced by New York Insurance Exchange Contract No. A23689-82 ("NYIE Certificate"), and the coverage by Prudential Reinsurance was evidenced by a separate facultative certificate, No. RFM400111 ("Prudential Certificate"). The NYIE Certificate and the Prudential Certificate provided that the reinsurers would reimburse Transit for payment of losses covered under Transit's Wally Byam account. Neither certificate provided for the direct payment of reinsurance proceeds to Martin or to the Wally Byam policyholders. Both certificates stated that only Transit or its statutory successor shall have any rights under the reinsurance contracts.

Additionally, both certificates contained almost identical "insolvency clauses." For example, the Prudential Certificate's insolvency clause provides, in pertinent part:

In the event of the insolvency of the Company, reinsurance under this Certificate shall be payable by Prudential Reinsurance on the basis of the liability of the Company without diminution because of such insolvency, directly to the Company or its liquidator, receiver, or statutory successor, except as otherwise provided by law.

In other words, the insolvency clause ensured that if Transit were to become insolvent, the reinsurer would pay Transit's liquidator for its share of Transit's liability under the policy, even if Transit, by virtue of its insolvency, had not actually sustained a loss. See Arrow Trucking Co. v. Continental Ins. Co., 465 So.2d 691, 699 (La.1985) (discussing insolvency clauses in reinsurance contracts).

On December 3, 1985, Transit was declared insolvent by order of the Circuit Court of Cole County, Missouri, in Hall v. Transit Casualty Co., No. CV185-1206CC. The court appointed the Director of the Division of Insurance of the state of Missouri as permanent receiver, to wind up and liquidate the company. In its order of liquidation, the court ordered, inter alia,

7. All persons, wherever situated, are permanently enjoined and restrained from prosecuting or bringing any action, issuing any process or obtaining any judgment against defendant Transit Casualty Company or its properties or assets;

8. All persons, wherever situated, are hereby enjoined from interference with the possession, title or rights of petitioner as Receiver in Liquidation in and to the assets of defendant Transit Casualty Company and from interference with the Following Transit's insolvency, the London reinsurers ultimately reimbursed Martin directly for their percentage of Martin's loss payments to the Wally Byam policyholders, pursuant to the direct payment provisions of the London reinsurers' certificates.

conduct of liquidation of defendant Transit Casualty Company except as may be ordered by the Court.

In 1987 Transit's receiver made demand on one of the appellees, Lancer Syndicate ("Lancer"), for reinsurance proceeds due under the Wally Byam account. Lancer paid the receiver, and the Missouri court handling the liquidation proceeding approved a commutation agreement fully discharging Lancer from any liability it had to Transit or its receiver.

Also in 1987, Martin filed official proofs of claim in Transit's Missouri liquidation proceeding for claims Martin paid out to Wally Byam Club members between 1983 and 1985. Those claims are still pending.

In May 1988, Martin brought this action in Louisiana state court against the domestic reinsurance companies, seeking to recover directly from them for the claims it paid out to Wally Byam Club members between 1983 and 1985, for which it did not receive reimbursement from Transit. The reinsurers removed the action to the United States District Court for the Eastern District of Louisiana, and moved for dismissal or alternatively for summary judgment.

On June 7, 1989, the district court dismissed the action without prejudice on two independent grounds: (1) that the Uniform Insurers Liquidation Act, adopted by both Louisiana and Missouri, divests courts in Louisiana of jurisdiction over controverted claims regarding out-of-state insolvent insurers, and (2) that the litigation could not proceed in the absence of Transit's receiver, an indispensable party. The district court did not decide the merits of Martin's claim for direct reimbursement from the reinsurers. Martin then moved for reconsideration and a new trial, and the district court denied both motions. Martin now appeals the dismissal of its action.

DISCUSSION

Both Missouri and Louisiana have adopted the Uniform Insurers Liquidation Act ("UILA"), governing the liquidation of insolvent insurance companies. La.Rev.Stat.Ann. Secs. 22:757-763 (West 1978 & Supp.1990); Mo.Ann.Stat. Secs. 375.950-990 (Vernon Supp.1988). Under the UILA, liquidation proceedings for insurance companies are properly conducted in the domiciliary state, the state in which the insolvent insurer is incorporated or organized. See La.Rev.Stat.Ann. Secs. 22:757(5), :758-59. When the domiciliary state's court enters a liquidation order, the domiciliary receiver becomes vested with title to all assets of the insolvent insurer. La.Rev.Stat.Ann. Sec. 22:758(B); see also Mo.Ann.Stat. Sec. 375.954(2).

The UILA also provides, in pertinent part:

Controverted claims belonging to claimants residing in this state may either (1) be proved in the domiciliary state as provided by the law of that state, or (2) if ancillary proceedings have been commenced in this state, be proved in those proceedings.

La.Rev.Stat.Ann. Sec. 22:760(B); see also Mo.Ann.Stat. Sec. 375.966(2). Hence, from the moment a receiver is appointed, all claims against the insolvent insurer must be presented either to the domiciliary receiver or to an ancillary receiver appointed in the reciprocal state. Miner v. Punch, 838 F.2d 1407, 1410 (5th Cir.1988).

The domiciliary state for Transit is Missouri, and that is where the liquidation order was entered. The parties agree that no ancillary proceedings have been commenced in Louisiana, which is a reciprocal state by virtue of having adopted the UILA. Therefore, Martin, a Louisiana claimant, must bring any controverted claims involving Transit's assets in the Missouri liquidation court.

Louisiana law recognizes that if a reinsurance contract specifies that the reinsurer intends to assume and carry out directly the ceding insurer's policy obligations or specifies that the reinsurer will pay someone Martin argues that the reinsurance proceeds which it claims in this action are not assets of Transit. According to Martin, the sole indication that the reinsurance proceeds are assets of Transit payable only to Transit's receiver is the presence of the insolvency clauses in the reinsurance certificates. But Martin contends that those insolvency clauses are invalid...