American Re-Insurance Co. v. INSURANCE COM'N, ETC.

• Decision Date: 07 August 1981
• Docket Number: No. CV 78-4069-WMB.,CV 78-4069-WMB.
• Citation: 527 F. Supp. 444
• Parties: AMERICAN RE-INSURANCE COMPANY, Plaintiff, v. The INSURANCE COMMISSION OF the STATE OF CALIFORNIA, as liquidator of Signal Insurance Company and of Imperial Insurance Company, the Chief of the Receivership Division of the Department of Insurance of the State of Alabama, as ancillary liquidator of Imperial Insurance Company, the Department of Insurance of the State of Florida, as ancillary receiver of Signal Insurance Company and of Imperial Insurance Company, the California Insurance Guarantee Association, the Arizona Property and Casualty Insurance Guaranty Fund Board, the Iowa Insurance Guarantee Association, the Nevada Insurance Guarantee Association, the Florida Insurance Guarantee Association, the Washington Insurance Guarantee Association, the Alaska Insurance Guarantee Association, the Kansas Insurance Guarantee Association, the Oregon Insurance Guarantee Association, the Utah Insurance Guarantee Association and Dr. Robert Watanabe, Defendants. State of Nevada and Rauel Sawyer, Intervenors.
• Court: U.S. District Court — Central District of California

527 F. Supp. 444

AMERICAN RE-INSURANCE COMPANY, Plaintiff, v. The INSURANCE COMMISSION OF the STATE OF CALIFORNIA, as liquidator of Signal Insurance Company and of Imperial Insurance Company, the Chief of the Receivership Division of the Department of Insurance of the State of Alabama, as ancillary liquidator of Imperial Insurance Company, the Department of Insurance of the State of Florida, as ancillary receiver of Signal Insurance Company and of Imperial Insurance Company, the California Insurance Guarantee Association, the Arizona Property and Casualty Insurance Guaranty Fund Board, the Iowa Insurance Guarantee Association, the Nevada Insurance Guarantee Association, the Florida Insurance Guarantee Association, the Washington Insurance Guarantee Association, the Alaska Insurance Guarantee Association, the Kansas Insurance Guarantee Association, the Oregon Insurance Guarantee Association, the Utah Insurance Guarantee Association and Dr. Robert Watanabe, Defendants State of Nevada and Rauel Sawyer, Intervenors.

No. CV 78-4069-WMB.

United States District Court, C. D. California.

August 7, 1981.

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Martha Bannerman, Adams, Duque & Hazeltine, Los Angeles, Cal., for plaintiff.

Peter M. Appleton, Tyre & Kamins, Paul S. Leevan, Klinger & Leevan, Ned Good, Law Offices of Ned Good and Samuel Shore, Jonathan F. Bank, Buchalter, Nemer, Fields, Chrystie & Younger, Caldwell & Toms, Kenneth H. Clausen, Clausen, Harris & Campbell, Eric Nelson Lindquist, Los Angeles, Cal., Robert Ong Hing, Stockton & Hing, Phoenix, Ariz., Edmond Mamer, Deputy Atty. Gen., Edward J. Horowitz, Los Angeles, Cal., Wayne Wilson, Carson City, Nev., for defendants.

WM. MATTHEW BYRNE, Jr., District Judge.

This action arises out of the insolvency of the Signal Insurance Company ("Signal"), and the Imperial Insurance Company ("Imperial"), (collectively, "Signal/Imperial"). Plaintiff American Re-Insurance Company ("American") entered into reinsurance and retrocession agreements with Signal/Imperial, which obligate American to indemnify Signal/Imperial for a certain portion of losses on insurance policies written by these companies. Following the insolvency of Signal/Imperial, various parties have made conflicting demands for direct payment of proceeds due under the reinsurance contracts executed by American and Signal/Imperial.

The Second Amended Complaint names as defendants: the Insurance Commissioner of the State of California, as domiciliary liquidator of Signal/Imperial ("California Commissioner");¹ the Chief of the Receivership Division of the Department of Insurance of the State of Alabama, as ancillary liquidator of Imperial;² the Department of Insurance of the State of Florida, as ancillary receiver of Signal/Imperial ("Florida Department");³ the California Insurance Guarantee Association ("CIGA"); the Arizona Property and Casualty Insurance Guaranty Fund Board ("AIGFB"); the Iowa Insurance Guaranty Association; the Nevada Insurance Guaranty Association ("NIGA"); the Florida Insurance Guaranty Association ("FIGA"); the Washington Insurance Guaranty Association; the New Jersey Property-Liability Insurance Guaranty Association; the Alaska Insurance Guaranty Association; the Kansas Insurance Guaranty Association; the Oregon Insurance Guaranty Association; the Utah Insurance Guaranty Association;⁴ Dr. Robert Watanabe; and J. Michael Low, Director of Insurance for the State of Arizona, as ancillary receiver of Imperial.⁵

The Second Amended Complaint alleges five claims for relief. The First Claim seeks a declaratory judgment as to American's right to an offset against any reinsurance proceeds that it may owe pursuant to its reinsurance agreements with Signal/Imperial. The Second Claim seeks a declaratory judgment that American must pay any reinsurance proceeds due Signal/Imperial to the California Commissioner and not to other defendant/claimants. The Third Claim is for a declaratory judgment that American is not liable to Watanabe, an original insured of Signal/Imperial, or to Rauel Sawyer, a third-party claimant against Signal/Imperial, for any obligation arising out of a malpractice claim brought against Watanabe by Sawyer and allegedly covered by his policy with Signal/Imperial.⁶ The Fourth Claim is one for statutory interpleader, pursuant to 28 U.S.C. § 1335, concerning a liquidated Florida claim against Signal/Imperial under which American's maximum reinsurance liability is $63,000. American has deposited $63,000 with the Court and named the Florida Department, the California Commissioner, and FIGA, as adverse claimants to the fund.⁷ American also claims a portion of the fund by way of an alleged right to offset.⁸ The Fifth Claim seeks a declaratory judgment that American must pay to the California Commissioner, and not Low,⁹ any reinsurance proceeds it may owe to Signal/Imperial.

The California Commissioner moves for partial summary judgment, pursuant to Fed.R.Civ.P. 56, on the ground that there is no genuine issue of material fact as to whether it is entitled to receive any reinsurance proceeds that are or may become due from American under its reinsurance agreements with Signal/Imperial, and that it is entitled to partial summary judgment, as a matter of law, in its favor, as to the Second, Third, Fourth, and Fifth Claims for Relief, except to the extent that such claims involve issues of American's asserted right to an offset, or claims of bad faith. American moves for partial summary judgment on the same ground.¹⁰ In addition, the Reinsurance Association of America has filed an amicus brief in support of the California Commissioner's motion for partial summary judgment.

I

Summary judgment may properly be granted only when no genuine issue of any material fact exists or, when viewing the evidence and the inferences that may be drawn therefrom in the light most favorable to the adverse parties, the movants are clearly entitled to prevail as a matter of law. See Gaines v. Haughton, 645 F.2d 761, 769 (9th Cir. 1981); Smith v. Gross, 604 F.2d 639, 641 (9th Cir. 1979); Real v. Discoll Strawberry Associates, Inc. 603 F.2d 748, 753 (9th Cir. 1979); Great Western Bank & Trust v. Kotz, 532 F.2d 1252, 1254 (9th Cir. 1976) (per curiam).

The reinsurance agreements entered into by American and Signal/Imperial each contain a clause regarding payment of reinsurance proceeds in the event of the insolvency of Signal/Imperial. With immaterial variations, the insolvency clause in each agreement provides, in part:

The reinsurance provided by this Agreement ... shall be payable by the Reinsurer directly to Signal/Imperial or to its liquidator, receiver or statutory successor on the basis of the liability of Signal/Imperial under the contract or contracts reinsured without diminution because of the insolvency of Signal/Imperial.

The reinsurance shall be payable as hereinbefore ... provided except as otherwise provided by Section 315 .... of the Insurance Law of New York or except (a) where the contract specifically provides another payee of such insurance in the event of the insolvency of Signal/Imperial and (b) where the Reinsurer with the consent of the direct insured or insureds has assumed such policy obligations of Signal/Imperial as direct obligations of the Reinsurer to the payees under such policies and in substitution for the obligations of Signal/Imperial to such payees. emphasis supplied.

See, e.g., Endorsement No. 2 to Article XVIII, Agreement No. 3546-0030; Exhibit E to Semple Affidavit, at 146-47.

The parties do not contend that § 315 of the New York Insurance Law applies in this case.¹¹ Nor does any party contend either that American has expressly assumed the policy obligations of Signal/Imperial or that the reinsurance agreements specifically provide for payees, other than the "liquidator, receiver or statutory successor," in the event of insolvency. Therefore, the issue raised by the present motions for partial summary judgment is: Who is the "liquidator, receiver, or statutory successor," within the meaning of the subject agreements, entitled to receive direct payments from American of the reinsurance proceeds? The resolution of this issue will depend on the applicable law governing the interpretation of the reinsurance agreements and the insolvency of insurers.

II

Under the Constitution, the federal government has the power to regulate insurance as part of interstate commerce. See United States v. South-Eastern Underwriters, Ass'n, 322 U.S. 533, 64 S.Ct. 1162, 88 L.Ed. 1440 (1944). It has, however, expressly declined to exercise that power and has left such regulation to the states. See McCarran-Ferguson Insurance Regulation Act, 15 U.S.C. §§ 1011 to 1015 (1976). Similarly, although the Constitution would support federal regulation of insurer-insolvency proceedings, see U.S. Constitution art. 1, § 8, cl. 4, Congress has declined to exercise its power to do so. See Bankruptcy Act, 11 U.S.C. § 22(b) (1976) (current version at 11 U.S.C.A. § 109 (West 1979)). Thus, appropriate State laws regulate insurer insolvency, and, in particular, govern the direct payment of reinsurance proceeds in the event of insurer insolvency.

Jurisdiction in this case is based on diversity of citizenship, 28 U.S.C. § 1332(a) (1976). Therefore, this Court must apply the law of the forum state, including its choice of law principles, to resolve the present controversy. See Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). This principle also applies to actions brought under the federal Interpleader Act, 28 U.S.C. § 1335.

In the absence of choice of law by the parties,¹² Cal.Civ.Code § 1646 requires application of the law of the place of performance, if specified, or, if the agreement does not indicate a place of performance, the law of the place where the contract was made. See Henderson v. Superior Court, 77 Cal.App.3d 583, 592-93, 142 Cal.Rptr. 478,...