In re Ambassador Ins. Co., Inc.

• Decision Date: 14 August 2008
• Docket Number: No. 07-232.,07-232.
• Citation: 2008 VT 105,965 A.2d 486
• Parties: In re AMBASSADOR INSURANCE COMPANY, INC.
• Court: Vermont Supreme Court

965 A.2d 486

2008 VT 105

In re AMBASSADOR INSURANCE COMPANY, INC.

No. 07-232.

Supreme Court of Vermont.

August 14, 2008.

Andre D. Bouffard and Charlotte B. Ancel of Downs Rachlin Martin PLLC, Burlington, for Appellant National Indemnity Company.

Bernard D. Lambek of Zalinger Cameron & Lambek, PC, Montpelier, and Brian T. Himmel of Reed Smith LLP, Pittsburgh, Pennsylvania, for Intervenor-Appellant A.P. Green Industries, Inc.

Peter F. Young, Assistant General Counsel, Montpelier, and Richard B. Whitney and Tracy K. Stratford of Jones Day, Cleveland, Ohio, for Appellee Department of Banking, Insurance, Securities and Health Care Administration.

Present: REIBER, C.J., DOOLEY, JOHNSON, SKOGLUND and BURGESS, JJ.

SKOGLUND, J.

¶ 1. In this appeal, we consider the proper priority status for claims made by an insured's assignee against an insolvent insurer. Liquidator of the insolvent insurance company, Ambassador Insurance, determined that claims—originally held by an insured, A.P. Green Industries, Inc., and classified as priority four claims— should be reclassified as priority five general-creditor claims after Green assigned its payment rights to National Indemnity Company (NICO). NICO challenged the reclassification, and the superior court granted summary judgment to liquidator,¹ concluding that the consent-to-assignment clauses in the insurance contracts barred assignment and that under the plain meaning of the priority statute, claims made by the assignee of an insured are not entitled to priority four status. NICO appeals the order, arguing that the assignment in this case does not change the priority status of the claims. We agree with NICO, and reverse and remand.

¶ 2. The parties do not dispute the material facts. Ambassador was a property and casualty insurance carrier that issued two occurrence-based excess liability insurance policies to Green covering the period of December 1982 to June 1984. Each policy provided ten million dollars of excess coverage in the fourth layer of coverage (consisting of twenty-five million dollars) in excess of twenty-six million dollars in the underlying three layers. Each policy contained a consent-to-assignment clause that stated: "Assignment of interest under this policy shall not bind [Ambassador] unless and until its consent is endorsed hereon."

¶ 3. Because Ambassador was experiencing financial difficulties, the superior court placed the insurance company in a receivership in November 1983. In March 1987, the superior court issued a liquidation order, appointing the Commissioner of Banking and Insurance² as liquidator, and dictating that distributions would be made following claim approval pursuant to the statutory scheme in effect at that time.³

¶ 4. The policy Ambassador issued to Green was one of many that Green had to insure against losses connected with its business, which included the manufacture, distribution, and installation of asbestos-containing products. Alleging injury from exposure to asbestos-containing material, injured parties began filing tort actions against Green in the 1980s. Green sought defense and indemnification in these cases from its various insurance providers. Although it did not originally appear that Ambassador's layer of excess coverage would be implicated, Green filed a proof-of-claim for policy protection for each Ambassador policy in the liquidation proceeding. The number of asbestos-related cases against Green grew in the 1990s, and, by 2001, it appeared that Ambassador's layer of coverage would be implicated. At that point, Green had settled about 200,000 asbestos-related claims for approximately four hundred and forty-six million dollars. There remained unfunded judgments and settlements involving about 49,500 asbestos-related claims of four hundred and ninety-two million dollars and more than 235,000 asbestos-related claims pending.

¶ 5. In 2001, because it was experiencing financial distress due to its massive asbestos-related liabilities, Green arranged to assign its claims against three insolvent insurance companies, including Ambassador, to NICO in exchange for immediate cash. NICO and Green entered an agreement whereby NICO paid Green one million dollars and Green assigned "all right, claim, title and interest" to payment in the Ambassador policies to NICO. In addition, NICO agreed to pay Green half of any amount that it might recover over three million dollars, after expenses. Green retained the management of and financial obligations for the claims. Under the weight of asbestos litigation and other business difficulties, Green filed for Chapter 11 bankruptcy in February 2002. The bankruptcy court approved Green's agreement with NICO. The court also approved Green's reorganization plan, which included the creation of two trusts for the benefit of Green's asbestos claimants. Any payment received pursuant to Green's agreement with NICO will be used to help fund these trusts.

¶ 6. Following the assignment, NICO submitted a claim to liquidator for twenty million dollars, the full amount due under the two policies. Liquidator determined that the claims were no longer class four policyholder claims and reclassified the claims as priority five general-creditor claims. In his letter notifying NICO of this decision, liquidator explained that although priority four claims were being paid at ninety percent, it was unlikely that priority five claims would be paid at all.

¶ 7. NICO requested review of the reclassification decision by the superior court, as permitted by the claims dispute resolution procedure in the liquidation order. The court referred the matter to a special master. The master concluded that the claims should be treated as priority four only to the extent that the funds would benefit Green's asbestos claimants. The master recommended that in all other respects the claims should be classified as priority five. Both parties objected to the master's decision to grant hybrid status to the claims.

¶ 8. NICO and liquidator each filed motions for summary judgment in superior court on the issue of the priority status of the claims.⁴ The court determined that there were no issues of material fact and granted summary judgment to liquidator. In its decision, the trial court held that the assignment was invalid because neither Green nor NICO sought or received permission from Ambassador/liquidator to assign the claims as required by the consent-to-assignment clauses in the insurance contracts. The court also held that "the plain language of the statute suggests that, with the exception of guaranty associations, the fourth priority simply does not extend to claims by assignees of policyholders, beneficiaries, or insureds." Thus, the court explained that, in its view, "[c]laims by ordinary assignees fall under the catch-all fifth priority." In response to NICO's argument that the assignments were valid as mere assignments of a right to payment, which are freely transferable under common law, the court concluded that the assignment was not merely for a payment right because the liabilities were not yet reduced to certain amounts. The court further explained that the assignment changed the nature of the relationship between Ambassador and Green, and exposed Ambassador to an increased risk of loss. Thus, the court held that liquidator properly reclassified the claims as priority five general-creditor claims. NICO filed a timely notice of appeal.

¶ 9. On appeal, NICO argues that the superior court erred in: (1) applying the consent-to-assignment clauses when the assignment involved a payment right to a post-loss claim and not an assignment of the policy itself; (2) concluding that the assignment resulted in an increased risk to Ambassador; and (3) interpreting the priority statute to exclude claims by assignees of insureds from priority four status.

¶ 10. In reviewing a decision granting summary judgment, this Court applies the same standard as the trial court. O'Donnell v. Bank of Vt., 166 Vt. 221, 224, 692 A.2d 1212, 1214 (1997). Summary judgment is appropriate when there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. V.R.C.P. 56(c)(3); O'Donnell, 166 Vt. at 224, 692 A.2d at 1214. When both parties have moved for summary judgment, we resolve all reasonable doubts and inferences in favor of the party opposing the motion being judged. Bixler v. Bullard, 172 Vt. 53, 57, 769 A.2d 690, 694 (2001).

I.

¶ 11. NICO first argues that the superior court erred in concluding that the consent-to-assignment clauses in the Ambassador policies can be enforced so as to deny NICO status as a priority four claimant. The parties agree that each of Ambassador's contracts with Green included the consent-to-assignment clause quoted above, and that neither Green nor NICO sought Ambassador's consent prior to entering their assignment agreement. In addition, liquidator does not dispute that Green assigned only its right to payment under the policies, and retained responsibility for managing the claims and paying injured parties. NICO maintains that the clause does not preclude assignment in this case because Green merely assigned a right to recover for a loss that had already occurred. According to NICO, there is no restriction on assignment of such a chose in action without a showing of an increased risk of loss to the insurer, which is absent here. We agree that the policy clause does not bar assignment in this case.

¶ 12. Most courts and commentators agree that post-loss assignment of payment under an insurance policy is not subject to a consent-to-assignment clause "for the obvious reason that the clause by its own terms ordinarily prohibits merely the assignment of the policy, as distinguished from a claim arising thereunder." 3 L. Russ & T. Segalla, Couch on Insurance § 35:7, at 35-8 to 35-9 (3d ed.1995); see also St. Paul Fire & Marine Ins. Co. v. Allstate Ins. Co., 25...