In re Liquidation of Legion Indem. Corp.

• Decision Date: 29 March 2007
• Docket Number: No. 1-05-4069.,1-05-4069.
• Citation: 870 N.E.2d 829
• Parties: In re LIQUIDATION OF LEGION INDEMNITY CORPORATION (GE Frankona Reinsurance Company Ltd., and ERC Frankona Reinsurance (III), Ltd., Plaintiffs and Counterdefendants-Appellees, v. Legion Indemnity Company, in Liquidation, Defendant and Counterplaintiff-Appellant).
• Court: United States Appellate Court of Illinois

870 N.E.2d 829

In re LIQUIDATION OF LEGION INDEMNITY CORPORATION (GE Frankona Reinsurance Company Ltd., and ERC Frankona Reinsurance (III), Ltd., Plaintiffs and Counterdefendants-Appellees, v. Legion Indemnity Company, in Liquidation, Defendant and Counterplaintiff-Appellant).

No. 1-05-4069.

Appellate Court of Illinois, First District, Fourth Division.

March 29, 2007.

Rehearing Denied June 20, 2007.

John J. Cullerton, Richard H. Chapman, James L. Oakley Fagelhaber LLC, D. Daniel Barr, Michael Buresch, Counsel to the Director as Receivor, Office of the Special Deputy Receiver, Chicago, for Appellant.

Jacqueline A. Criswell, Tressler, Soderstrom, Maloney & Preiss, LLP, Chicago, Steven E. Bizar (Pro Hac Vice), Buchanan Ingersoll & Rooney, PC, Philadelphia, PA, P. Kevin Brobson (Pro Hac Vice), Harrisburg, PA, for Appellees.

Justice MURPHY delivered the opinion of the court:

This case is before us on appeal of the trial court's order of summary judgment in favor of plaintiffs GE Frankona Reinsurance Company, Ltd., and ERC Frankona Reinsurance (III), Ltd., foreign insurance companies based in the United Kingdom known collectively as Eagle Star (Eagle Star). During the course of liquidation proceedings of defendant Legion Indemnity Company (Legion Indemnity), an Illinois insurance company, Eagle Star sought declaratory judgment from the trial court to declare its rights with respect to the calculation and reporting of balances it was owed. Based on a written agreement between Eagle Star and Legion Insurance Company (Legion Insurance), a Pennsylvania insurance company, and Legion Indemnity (collectively known, and referred to here, as Legion Companies) and the findings of the Pennsylvania Commonwealth Court (Commonwealth Court) with respect to that agreement in Koken v. Legion Insurance Co., 865 A.2d 945 (Pa.Cmwlth. 2004), the trial court granted Eagle Star's motion for summary judgment. For the reasons that follow, we affirm the trial court's summary judgment order.

I. BACKGROUND

In 1998 and 1999, until Legion Companies cancelled the program, the parties were involved in an international property insurance program managed by Global Managers, Inc. (GMI Program). Under the GMI Program, Eagle Star was the lead underwriter under the quota share reinsurance program. Eagle Star and other reinsurance companies provided reinsurance for Legion Indemnity and Legion Insurance policies that would then be written as part of the GMI Program. Legion Indemnity and Legion Insurance utilized net accounting to report a single cession statement to Eagle Star as Legion Companies. The cession statements to Eagle Star accounted for monies due Eagle Star for its share of premiums as well as monies due Legion Companies for loss claims.

On February 21, 2002, the parties entered into an agreement in an attempt to resolve a dispute over what monies were owed between the companies under the GMI Program. The parties, Legion Indemnity and Legion Insurance, collectively as "Legion" throughout the agreement, and Eagle Star outlined their respective responsibilities under the GMI Program and how each would carry these out. Gregg Frederick signed this agreement on behalf of both Legion entities as "Sr. V.P. Contract Compliance."

On March 19, 2002, Legion Insurance sent "Revised Eagle Star Cession Statements" to Eagle Star. The statements covered the entire program years of 1998 and 1999. The statements identified a balance due "Legion" for 1998 and a balance due Eagle Star for 1999. The final statement sheet combined the two years and identified a net balance due Eagle Star from "Legion" of $2,227,661 as of March 18, 2002.

On March 28, 2002, Legion Insurance was placed in rehabilitation by the Commonwealth Court. Within the rehabilitation order, the Commonwealth Court entered an antisuit injunction provision, prohibiting the filing of any cause of action against Legion Insurance. On April 3, 2002, the Illinois trial court entered an order of conservation against Legion Indemnity and placed the company under the control of the Director of Insurance. The Illinois court also included an antisuit injunction provision in its order, prohibiting any party with knowledge of the order from filing suit against Legion Indemnity.

On August 16, 2002, in a letter on "Legion Insurance Company" letterhead, Legion Companies sent new cession statements to Eagle Star. In addition to the combined final statement sheet noted above, cession statements for the years 1998 and 1999 were provided for both Legion Indemnity and Legion Insurance. These new statements indicated that Eagle Star owed Legion Indemnity $12,235,767, while Legion Insurance owed Eagle Star $14,513,429. The cover letter also included the address and bank accounts where funds due should be sent.

On October 4, 2002, Eagle Star filed a complaint for declaratory relief in the United States District Court for the Eastern District of Pennsylvania. Eagle Star sought a resolution of the billing dispute issue with Legion Companies; however, the federal district court entered an order on March 18, 2003, staying the federal action until such time as Eagle Star could receive permission from the Illinois and Pennsylvania tribunals to pursue the issue in that venue.

On April 9, 2003, following a trial, the Illinois trial court found Legion Indemnity insolvent and removed the company from conservation and entered an order of liquidation. Subsequently, on July 25, 2003, the Commonwealth Court placed Legion Insurance into liquidation. Also, at this time, the Commonwealth Court granted Eagle Star permission to pursue federal litigation despite the anti-suit injunction against the parties.

Eagle Star next petitioned the Illinois trial court for permission to pursue its federal action on August 22, 2003. On November, 7, 2003, the trial court denied Eagle Star's request. Citing the jurisdiction granted by the Illinois Insurance Code, the importance to Illinois of having its own courts settle insurance liquidation disputes, and a notice of consent from the Pennsylvania liquidator to the trial court's jurisdiction to resolve the issue, the trial court ruled that it had subject matter jurisdiction over the billing dispute and jurisdiction over all parties.

On December 12, 2003, in the Commonwealth Court, Eagle Star sought revocation of the Legion Insurance liquidator's consent. In response, on January 22, 2004, the Commonwealth Court ordered the Legion Insurance liquidator to prepare a "508 Report," in accordance with Section 508 of the Pennsylvania Insurance Code (40 Pa. Cons.Stat. Ann. § 221.8 (West 1999)). The Commonwealth Court's order required the following for the 508 Report:

"This report shall address the following items: the [Legion Insurance] accounting for the GMI program from inception to the present; how this accounting for the GMI program changed as a result of this Court's Rehabilitation Order of March 28, 2002; how this afore-referenced accounting change, if any, benefits [Legion Insurance], its creditors and policyholders; the reasons for the revisions to [Legion Insurance]'s March 19, 2002 cession statement as reflected [i]n Legion's August 12, 2002 cession statement; how the revisions made by the Insurance Commissioner to the afore-referenced cession statement benefit [Legion Insurance], its policyholders and creditors; the actuarial projections for future GMI program claims to be submitted by [Legion Insurance] and Legion Indemnity Company to Eagle Star; what offset provisions are contained in the applicable reinsurance agreements; whether the insolvency of either [Legion Insurance] or Legion Indemnity Company is addressed in any applicable offset provisions; how the intercompany receivables between [Legion Insurance] and its affiliates were affected by this Court's Rehabilitation Order of March 28, 2002; the intercompany receivables as of March 1, 2002 and January 1, 2004; and any other factual matters relevant and material to these above-listed items." (Emphasis omitted.) Koken, 865 A.2d at 949.

Eagle Star filed a motion to reconsider the Illinois trial court's order of November 7, 2003, and a hearing was held on January 28, 2004. Eagle Star argued again that the best venue for the dispute was the federal district court in Pennsylvania. It also informed the trial court of the request for the 508 Report and its belief that, from that request, the Commonwealth Court had concerns over the setoff dispute. Again citing the importance to Illinois of resolving insurance liquidation matters in its own courts, the trial court noted there was concurrent jurisdiction over the matter and denied Eagle Star's motion.

On February 23, 2004, the 508 Report was filed with the Commonwealth Court. That court scheduled a hearing on the propriety of the Legion Insurance liquidator's consent to proceed in Illinois and the August 16, 2002, cession statement. Notice of the hearing and a request to procure documents were sent to Legion Indemnity's receiver over Legion Insurance's motion to quash. Despite this, Legion Indemnity did not appear at the June 29, 2004, hearing in the Commonwealth Court.

At the hearing before the Commonwealth Court, the sole witness to testify was Gregg Frederick, senior vice president, reinsurance for Legion Insurance. Frederick, a former senior vice president of Legion Indemnity, signed the aforementioned February 21, 2002, agreement on behalf of Legion Indemnity and Legion Insurance. In addition, as noted by the trial court, Frederick signed discovery submissions on behalf of Legion Indemnity in that court. Following the hearing, posthearing documents were submitted by both Eagle Star and Legion Insurance, all of which were served on Legion Indemnity.

On December 9, 2004, the Commonwealth Court issued its decision in Koken. This extensive opinion and order concluded that during the course of dealing between the parties, Legion Insurance and Legion Indemnity acted as a single...