G. C. Murphy Co. v. Reserve Ins. Co.
| Decision Date | 29 October 1981 |
| Citation | 444 N.Y.S.2d 592,54 N.Y.2d 69,429 N.E.2d 111 |
| Parties | , 429 N.E.2d 111 G. C. MURPHY COMPANY, Appellant, et al., Plaintiffs, v. RESERVE INSURANCE COMPANY, Respondent, et al., Defendants. (And a Third-Party Action.) |
| Court | New York Court of Appeals Court of Appeals |
On this appeal, we are called upon to reconcile various provisions of the Uniform Insurers Liquidation Act. (Insurance Law, § 517 et seq.) The specific question presented is whether, absent the appointment of an ancillary receiver in this State, a claim asserted in a New York action against an out-of-State insurance company that is undergoing liquidation must be pursued in the domiciliary State of the insurer even though that claim is secured by an undertaking filed pursuant to section 59-a of the Insurance Law.
In 1973, plaintiff G. C. Murphy Company (Murphy) brought this action against various parties, including defendant Reserve Insurance Company (Reserve), seeking to recover $875,000 in unearned premiums to which Murphy claims it is entitled by reason of the cancellation of an insurance policy issued in New York to Murphy by Reserve. Reserve is an Illinois corporation that never obtained a license to do business in New York. Because Reserve was an unauthorized foreign insurer, Special Term issued an order pursuant to section 59-a of the Insurance Law 1 directing Reserve to post an undertaking in the amount of $1,077,000 before filing any pleadings in the action. In compliance with this order, a bond eventually was supplied by American Reserve Insurance Company of New York (American Reserve), an affiliate of Reserve.
On May 16, 1979, the Circuit Court of Cook County, Illinois, issued an order appointing the Director of Insurance of the State of Illinois as liquidator of Reserve. The same court, on May 29, 1979, issued a second order placing Reserve in liquidation because of insolvency. This order, inter alia, enjoined all persons "from bringing or further prosecuting any action" against Reserve, "from obtaining preferences, judgments, attachments, or liens" against the defendant, and "from asserting any claim against the Liquidator or Reserve Insurance Company except insofar as such claims arise in liquidation proceedings of Reserve Insurance Company."
Pursuant to the Illinois order of liquidation and the provisions of the Uniform Insurers Liquidation Act, Reserve, on behalf of the liquidator, moved for dismissal of the action against it or, alternatively, for a stay pending the Illinois liquidation proceedings. For its part, Murphy made two motions: (1) for an order requiring Reserve to deposit additional security with the court and enjoining Reserve from removing or transferring property deposited by it with American Reserve; and (2) for leave to join American Reserve as a party defendant and to assert a cause of action against it as surety for the obligation of Reserve.
Special Term consolidated the three motions for disposition. The court denied Reserve's motion to stay or dismiss the action, stating that "the Uniform Insurers Liquidation Act may not be used to deprive of the security provided to it under subdivision 3 of section 59-a of the Insurance Law or deprive this court of jurisdiction." (101 Misc.2d 729, p. 734, 421 N.Y.S.2d 1006.) In addition, Special Term granted Murphy's motion to join American Reserve as a party defendant and directed that the Reserve property left with American Reserve was available as part of the security provided to Murphy.
On appeal, the Appellate Division, two Justices dissenting, modified. The court below held that, since no ancillary receiver was appointed in New York, "Murphy must pursue the instant claim against the liquidator in Illinois." (74 A.D.2d 235, p. 239, 427 N.Y.S.2d 800.) The Appellate Division accordingly granted Reserve's motion to the extent of staying the action as against it, with leave given to Murphy to file its claim against the liquidator in Illinois and denied Murphy's motions as academic. Thereafter, the Appellate Division granted Murphy leave to appeal to this court, certifying the following question for our review: "Was the order of this Court, which modified the order of Supreme Court, properly made?"
In this court, Murphy contends that, by virtue of the undertaking filed pursuant to section 59-a of the Insurance Law, it is the owner of a "secured claim" within the meaning of the Uniform Insurers Liquidation Act (see Insurance Law, § 517, subd. 11) and that as such, it is entitled under section 522 of the Insurance Law to proceed against this security in a New York action, independent of the Illinois liquidation proceedings. We cannot agree. Assuming that Murphy possesses a "secured claim" 2 we nevertheless conclude that the Uniform Insurers Liquidation Act mandates that Murphy pursue its claim against Reserve in the Illinois liquidation proceedings.
At the outset, we dispose of a procedural issue. Murphy's application, pursuant to CPLR 1002 (subd. ) and 3025 (subd. ), to join the surety, American Reserve, as a party defendant was granted by Special Term. The Appellate Division denied the application on the ground that it was "academic" in view of that court's order staying the entire action against Reserve. We conclude that this was error. Inasmuch as our essential purpose in affirming the determination of the Appellate Division to stay this action in New York pending the disposition of Murphy's claims in the Illinois liquidation proceedings is to protect the rights that Murphy acquired against the surety pursuant to the provisions of section 59-a, Murphy should now be granted permission to join the surety as a defendant, and, if so joined, the surety should be afforded the opportunity to protect its interests. The opposition to the motion to join the surety was based on the contention that the action against Reserve should be dismissed and that if it were dismissed, the dependant claim against American Reserve as surety would be moot. Inasmuch as the action against Reserve is not being dismissed, there is no substance to the opposition to join American Reserve as a party defendant. Of course, the action against the surety cannot proceed until there has been a favorable adjudication of Murphy's claim against Reserve.
Difficulties encountered in the forced liquidation of multistate insurance companies led to the promulgation of the Uniform Insurers Liquidation Act. (13 Uniform Laws Ann. pp. 429-457.) In a prefatory note accompanying this act, the following observations were made by the National Conference of Commissioners on Uniform State Laws: (13 ULA pp. 429-430.)
The drafters went on to note six specific "embarrassments" that the uniform act was designed to eliminate: (1) the inefficient administration of the liquidation process caused by the appointment of receivers other than the various State Insurance Commissioners; (2) the lack of authority on the part of domiciliary receivers to proceed in nondomiciliary States leading to the dissipation of assets outside the home State and enabling out-of-State debtors to avoid their obligations; (3) the ineffective administration of the liquidation process caused by differences in the laws of the various States regarding the title and right to possession of the property of a defunct nonresident insurer; (4) the serious inconvenience in proving claims experienced by creditors living outside the defunct insurer's domicile; (5) the problems generated by diverse State laws governing preferences such as wage claims, compensation claims and tax claims; and (6) the inequity resulting from preferences obtained by diligent nondomiciliary creditors with advance information of an insurer's impending insolvency. (13 ULA pp. 430-431.) Thus, the Uniform Insurers Liquidation Act was adopted with the main purpose in mind of providing a uniform system for the orderly and equitable administration of the assets and liabilities of defunct multistate insurers.
Both New York and Illinois have adopted the Uniform Insurers Liquidation Act. (Insurance Law, § 517 et seq.; Ill.Rev.Stat., ch. 73, § 833.1 et seq.) 3 Because Illinois qualifies as a "reciprocal state" (Insurance Law, § 517, subd. 7; see Kelly v. Overseas Investors, 24 A.D.2d 157, 264 N.Y.S.2d 586, revd. on...
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