O'CONNOR v. Insurance Co. of North America
| Decision Date | 01 September 1987 |
| Docket Number | No. 81 C 4690.,81 C 4690. |
| Citation | 668 F. Supp. 1183 |
| Court | U.S. District Court — Northern District of Illinois |
| Parties | Phillip R. O'CONNOR, Director of Insurance of the State of Illinois, as Liquidator of Reserve Insurance Company, Plaintiff, v. INSURANCE COMPANY OF NORTH AMERICA; INA Underwriters Insurance Company; Hamburg International Reinsurance Company; Societe Commercial de Reassurance; Gerland Global Reinsurance Corp. (U.S. Branch); Lumbermen's Mutual Insurance Company; Dominion Insurance Company of America; North American Reinsurance Corporation; Employers Reinsurance Corporation; Puritan Insurance Company; Munich American Reinsurance Company; New England Reinsurance Corporation; Prudential Reinsurance Company; Scor Reinsurance Company; Seminole Refining, Inc.; Pride Refining, Inc.; Independent Refining Corporation; General Reinsurance Corporation; American Reserve Insurance Brokers/International, Inc.; Montgomery and Collins, Inc. of Texas; Petroleum Insurance Inc.; Munich Reinsurance Co. (U.S. Branch); Monarch Insurance Company of Ohio; Central National Insurance Company of Omaha; Lloyds of London; Willis, Faber & Dumas; Rochdale Insurance Company; Excess & Casualty Reinsurance Association; and Bind, Inc., Defendants. |
Jeremiah Marsh, Michael Schneiderman, John L. Rogers, III, John N. Gavin, Rebecca R. Pallmeyer, Hopkins & Sutter, Chicago, Ill., for plaintiff.
David M. Spector, Edward R. Gower, Isham, Lincoln & Beale, Clay H. Phillips, Peter M. Sfikas, Peterson, Ross, Schloerb & Seidel, Alexander R. Domanskis, Ross, Hardies, O'Keefe, Babcock & Parsons, John W. Dondanville, Baker & McKenzie, Arent J. Jacobson, Erwin I. Katz, Alvin L. Kruse, Hoffman & Davis, Chicago, Ill., and Rein, Mound & Cotton, New York City, for defendants.
On October 21, 1985, Judge Plunkett issued an order granting the defendants' motion for partial summary judgment, denying the plaintiff's cross-motion, and granting the defendants' motion to dismiss Counts V and VI of the complaint for failure to state a claim. O'Connor v. Insurance Company of North America, 622 F.Supp. 611 (N.D.Ill.1985). The case was transferred to this court on October 29, 1985, and ten months later plaintiff moved to reconsider pursuant to Fed.R.Civ.P. 54(b).1
Background facts essential to understanding the case are set forth below. For more detail, see Judge Plunkett's ruling, id at 613-15.
Philip O'Connor, Director of Insurance for the State of Illinois, brings this action as Liquidator ("Liquidator") of the Reserve Insurance Company ("Reserve"). Defendants are twenty-six insurance companies that entered into reinsurance contracts with Reserve and three other companies that managed or had the right to manage those contracts. American Reserve Insurance Brokers International, Inc. ("ARIB"), an affiliate of Reserve, was the manager prior to Reserve's liquidation and shortly thereafter.
Reserve went into liquidation on May 29, 1979. It had been losing money under the reinsurance contracts since the beginning of that year. ARIB, as manager, stopped issuing Reserve policies, and the Liquidator contends it also cancelled a large number of policies in April and May of 1979.
In this action, the Liquidator sought to recover various sums primarily composed of reinsurance proceeds and unearned premiums. Defendants responded by claiming that they were entitled to a set-off of monies allegedly owed by Reserve under the reinsurance contracts. The Liquidator also alleged that defendants improperly cancelled a large number of Reserve's policies just prior to bankruptcy. These two legal issues were addressed in the cross-motions for summary judgment and in the motion to dismiss, respectively, and are now before this court for reconsideration.
The Seventh Circuit has stated that "a district judge should carefully consider the propriety of re-examining a prior ruling of another district judge in the same case...." Eades v. Thompson, 823 F.2d 1055, 1061 (7th Cir.1987) (quoting Peterson v. Lindner, 765 F.2d 698, 704 (7th Cir. 1985)). Accordingly, this court will defer to Judge Plunkett's ruling as the law of the case unless his decision was clearly erroneous or manifestly unjust. See Redfield v. Continental Casualty Corp., 818 F.2d 596, 605 (7th Cir.1987). Neither of these exceptions is applicable here, thus the Liquidator's motion for reconsideration is denied for the reasons stated below.
As explained in Judge Plunkett's opinion, the Illinois Insurance Code provides that "in all cases of mutual debts or mutual credits between the company and another person, such credits and debts shall be set off or counterclaimed and the balance only shall be allowed or paid...." Ill.Rev.Stat. ch. 73, § 818 (Supp.1987) (effective July 1, 1967). Judge Plunkett found (and the parties do not dispute) that mutual debts are those arising at the same stage of the proceedings, so that debts owed prior to bankruptcy only can be set off by other debts owed prior to bankruptcy. Since the parties agree that the debts owed by Reserve under the reinsurance contracts are preliquidation debts, see note 8 of Judge Plunkett's opinion, the only question is whether the debts allegedly owed by defendants fall into the same category.
This court finds that they do. The claimed sums include (1) reinsurance proceeds for losses incurred by Reserve's policyholders prior to liquidation but not paid as of the date of the liquidation order; (2) monies owed by defendants to Reserve for policyholders' claims that were paid with Reserve's funds prior to bankruptcy; (3) Reserve's pro rata share of premiums earned under one of the reinsurance agreements; and (4) the unearned premiums on Reserve policies cancelled on May 29, 1979. All of these amounts were fixed prior to or upon liquidation, and one of them (the policyholders' claims paid with Reserve's funds) is alleged to have been expended as of that date.
Judge Plunkett's opinion contains numerous citations to legal authorities that need not be repeated. See generally, 4 Collier on Bankruptcy § 68 et seq. (14th ed. 1978). That ruling also questioned one of the chief cases on which the Liquidator relies, Melco System v. Receivers of Trans-America Ins. Co., 268 Ala. 152, 105 So.2d 43 (1958), and we cannot say that his skepticism was groundless. Moreover, we find that the other decisions cited by the Liquidator— none of which was rendered since the date of the original order—are distinguishable and do not justify changing the result already reached.
In Manchester Insurance & Indemnity Company v. Manchester Premium Budget Corporation, 469 F.Supp. 126 (E.D.Mo. 1979), the district judge refused to allow a set-off for unearned premiums because the cancellation of the policies (and hence the right to the premium returns) occurred after the date of insolvency. Id. at 129. On appeal, the Eighth Circuit focused not on that basis for the district court's opinion, but on another one: the dissimilarity of the capacities of the parties involved in the set-off. See Manchester Premium Budget Corporation v. Manchester Insurance & Indemnity Company, 612 F.2d 389, 392 (8th Cir.1980).
Ratchford v. United States Central Underwriters Agency, Inc., 492 F.Supp. 137 (E.D.Mo.1980), also is inapposite. In that case, the court gave numerous reasons for disallowing a set-off, and only as an afterthought mentioned that the claim was unliquidated. Id. at 140-41. In Harnett v. National Motorcycle Plan, Inc., 59 A.D.2d 870, 399 N.Y.S.2d 242, 244 (1st Dept.1977), the court based its decision on the dissimilarity of the parties' capacities, and in Pink v. Title Guarantee & Trust Co., 274 N.Y. 167, 8 N.E.2d 321, 324 (1937), the court held that at the time of the insolvency there was no debt because the...
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...reasoning, the Northern District Court in Illinois denied the liquidator's motion to reconsider O'Connor in O'Connor v. Insurance Co. of North America (N.D.Ill.1987) 668 F.Supp. 1183. In so doing, the court observed that there is "also a significant policy reason for upholding [the O'Connor......
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