Clark and Co., Inc. v. Department of Ins. as Receiver of Eastern Ins. Co.
| Decision Date | 05 August 1983 |
| Docket Number | No. AQ-186,AQ-186 |
| Citation | 436 So.2d 1013 |
| Parties | CLARK AND COMPANY, INC., Appellant, v. The DEPARTMENT OF INSURANCE AS RECEIVER OF EASTERN INSURANCE COMPANY and The Florida Insurance Guaranty Association, Appellees. |
| Court | Florida District Court of Appeals |
Robert E. Gibson, Tallahassee, for appellant.
Dennis K. Threadgill and Robert E. Sheridan, Tallahassee, for appellee Dept. of Ins.
R. Lee Smith and Paul M. Harden, Jacksonville, for appellee Florida Ins. Guar. Ass'n.
Appellant, Clark and Company, Inc. (Clark), appeals from a final order denying its petition for priority in the distribution of reinsurance proceeds owed to Eastern Insurance Company (Eastern), an insolvent Florida insurer now in receivership, contending that it is entitled to a priority under any of three theories: (1) as a third-party beneficiary; (2) as an exception, recognized by this court, to the general rule regarding distribution of reinsurance proceeds; and (3) as an assignee. We disagree and affirm the lower court's order in its entirety.
Clark, a managing general insurance agency with its principal place of business in Texas, is engaged in the business of providing surplus lines coverage to Texas residents through out-of-state insurers not otherwise authorized to do business in that state. In 1980 Clark proposed to Eastern a business arrangement whereby Clark, not itself an insurer, would write insurance coverage in Texas, Louisiana and Oklahoma on Eastern's behalf. The arrangement was to be structured so as to give Clark substantial control over the day-to-day operations in order to provide it with maximum flexibility in writing the policies. In return, Eastern would receive a small percentage of the premiums generated by Clark. Finally, the arrangement contemplated that reinsurance treaties would be secured so that Eastern would retain only 10% of the risk on the policies written by Clark. 1 On July 15, 1980, Clark and Eastern entered into a management agreement detailing the duties, obligations and responsibilities of each party. On the same date, Eastern entered into three reinsurance treaties with a group of out-of-state reinsurers which, collectively, agreed to assume 90% of the risk on Eastern policies written by Clark, not a party to the treaties. Each treaty contained the following express provision regarding procedures to be followed in the event of Eastern's insolvency:
It is further agreed and understood that in the event of insolvency of the Company, the reinsurance shall be payable by the Reinsurer directly to the Company, or to its liquidator, receiver or statutory successor, except as provided by Section 315 of the New York Insurance Law or except (a) where the Agreement specifically provides another payee of such reinsurance in the event of the insolvency of the Company and (b) where the Reinsurer with the consent of the direct insured or insureds have assumed such policy obligations of the Company as direct obligations of the Reinsurer to the payees under such policies and in substitution for the obligations of the Company to such payees.
(emphasis supplied).
Clark and Eastern operated under their management agreement for approximately one year until Eastern found itself in a precarious financial position due to heavy losses sustained by it on policies written by Clark. On October 1, 1981, Eastern agreed to a bordereau agreement with Southeast Fire Insurance Company in which Southeast, a reinsurer, agreed to assume 100% of the risk on all Eastern policies written by Clark prior to that date. Later that month Eastern was placed in receivership by the Florida Department of Insurance.
Clark in the meantime had paid out some $250,000.00 in claims to Texas insureds on the assumption that it would be liable for such claims as the surplus lines agent for Eastern in that state. To ensure its reimbursement for that amount, Clark sought to establish its right to a priority over Eastern's other creditors in the distribution of reinsurance proceeds. After hearing extensive testimony and reviewing all relevant documents, the lower court found that Clark's asserted priority under a third-party beneficiary theory was negated by the clear and unambiguous language of the insolvency provisions of the reinsurance treaties.
In urging reversal of the lower court's order, Clark notes that the issue of priority of distribution of reinsurance proceeds has been addressed by this court on two prior occasions. In the first decision, McDonough Construction Corporation v. Pan American Surety Company, 190 So.2d 617 (Fla. 1st DCA 1966), we considered and rejected the argument of an insured that had contended it was entitled to a priority in the distribution of reinsurance proceeds as a third-party beneficiary to a reinsurance contract. In concluding that reinsurance proceeds must be paid to the insurer's receiver for the benefit of all creditors, we recognized the general rule relating to reinsurance contracts:
An ordinary contract of reinsurance, in the absence of provisions to the contrary, operates solely as between the reinsurer and the reinsured. It creates no privity between the original insured and the reinsurer .... Upon the insolvency of the insurer the proceeds of the reinsurance become assets to be distributed generally among the creditors, and the original insured has no equitable claim upon them. The liability of the reinsurer is solely and exclusively to the reinsured.
190 So.2d at 618-619 (emphasis supplied). Applying that rule, we concluded that the insured had no right to a priority in reinsurance proceeds over that of all other creditors of the insolvent insurer.
A similar issue was before the court in Mitchell v. State ex rel. Williams, 223 So.2d 792 (Fla. 1st DCA 1969), but in the context of a different factual situation. In Mitchell, an insured under a fire insurance...
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