In re Liquidation of the Home Ins. Co.

• Decision Date: 05 December 2006
• Docket Number: No. 2005–740.,2005–740.
• Citation: 154 N.H. 472,913 A.2d 712
• Court: New Hampshire Supreme Court
• Parties: In the Matter of the LIQUIDATION OF the HOME INSURANCE COMPANY.

154 N.H. 472

913 A.2d 712

In the Matter of the LIQUIDATION OF the HOME INSURANCE COMPANY.

No. 2005–740.

Supreme Court of New Hampshire.

Argued: June 7, 2006.

Opinion Issued: Dec. 5, 2006.

Rackemann, Sawyer & Brewster, of Boston, Massachusetts (J. David Leslie and Eric A. Smith on the brief, and Mr. Leslie orally), and Kelly A. Ayotte, attorney general (J. Christopher Marshall, attorney, on the brief), for the petitioner, the Commissioner of Insurance of the State of New Hampshire as Liquidator of the Home Insurance Company.

Lovells, of New York, New York (Gary S. Lee & a. on the brief, and Pieter Van Tol orally), and Orr & Reno, P.A., of Concord (Ronald L. Snow and Lisa Snow Wade on the brief), for intervenors Century Indemnity Company, Pacific Employers Insurance Company, ACE Property and Casualty Insurance Company, and ACE American Reinsurance Company.

Downs Rachlin Martin, PLLC, of Burlington, Vermont (Andre D. Bouffard and Eric D. Jones on the brief, and Mr. Bouffard orally) for intervenor Benjamin Moore & Company.

Rebecca W. McElduff, of Kansas City, Missouri, by brief, and Sheehan Phinney Bass + Green, P.A., of Manchester (Bruce A. Harwood and James P. Harris on the brief) for the National Association of Insurance Commissioners, as amicus curiae.

Wiggin & Nourie, P.A., of Manchester (Doreen F. Connor on the brief), and Dykema Gossett PLLC, of Detroit, Michigan (Suzanne Sahakian on the brief) for the National Conference of Insurance Guaranty Funds, as amicus curiae.

Orr & Reno, P.A., of Concord (Lisa Snow Wade on the brief), and Tracy W. Laws and Matthew T. Wulf, of Washington, D.C., by brief for the Reinsurance Association of America, as amicus curiae.

DUGGAN, J.

The intervenors, Century Indemnity Company, Pacific Employers Insurance Company, ACE Property and Casualty Insurance Company, ACE American Reinsurance Company (collectively, the ACE Companies) and Benjamin Moore & Company (BMC), appeal orders of the Superior Court (McGuire, J.) granting the motion of the petitioner, the New Hampshire Commissioner of Insurance (commissioner) as liquidator of the Home Insurance Company (Home), for approval of a proposed agreement with certain insureds and reinsureds of Home. Under the proposed agreement, these entities would receive payments of approximately $78 million in exchange for filing reinsurance claims against Home. The superior court granted the commissioner's motion upon finding that: (1) the commissioner was authorized to enter into the proposed agreement; (2) the proposed agreement was necessary to maximize the recovery of Home's assets and protect the interests of the insureds and creditors; and (3) the proposed agreement was fair and reasonable. We affirm.

The record supports the following facts. The ACE Companies are reinsurers of Home. BMC is a policyholder claimant "with numerous open liability claims" against Home. Prior to becoming insolvent, Home was domiciled in New Hampshire, and licensed and regulated by the New Hampshire Insurance Department. Home operated an unincorporated branch in the United Kingdom, its "UK Branch," through which it wrote property and casualty insurance and reinsurance.

Home conducted business in the United Kingdom as a member of the American Foreign Insurance Association (AFIA), an unincorporated association of American insurance companies that wrote insurance and reinsurance. As a member of the AFIA, Home entered into insurance and reinsurance agreements (collectively, the AFIA treaties) with certain entities in the United Kingdom (collectively, the AFIA Cedents). Home then obtained reinsurance on these agreements from member companies in the AFIA and other third party reinsurers.

In 1984, CIGNA Insurance Company purchased the AFIA. As part of that transaction, Insurance Company of North America (INA), a subsidiary of CIGNA, entered into an Insurance and Reinsurance Assumption Agreement (assumption agreement) with Home and other participating members of the AFIA. Pursuant to the assumption agreement, INA assumed the insurance and reinsurance liabilities of Home with respect to Home's operations in the United Kingdom, and agreed to bear the related costs and expenses of administering this business. Significantly, the assumption agreement contains an insolvency clause requiring INA to pay obligations directly to Home, or Home's liquidator, in the event of Home's insolvency.

In 1996, as part of a corporate restructuring, Century Insurance Company (Century) succeeded to INA's rights and obligations under the assumption agreement and became required to reinsure Home for all of its obligations to the AFIA Cedents. Century became part of the ACE Companies in 1999, thereby obligating the ACE Companies to pay all claims submitted against Home by the AFIA Cedents under the AFIA.

Proceedings against Home under the Insurers Rehabilitation and Liquidation Act, RSA ch. 402–C (2006), were initiated when the commissioner petitioned the superior court for an Order of Rehabilitation for Home. On March 5, 2003, the superior court entered an Order of Rehabilitation for Home and appointed the commissioner to be Home's rehabilitator. On May 8, 2003, in conjunction with an application for an order of liquidation in New Hampshire, the commissioner petitioned the High Court of Justice in London (English Court) to appoint a Joint Provisional Liquidation (JPL) team for Home under English law. While this provisional liquidation proceeding took place in the United Kingdom, the liquidation of Home is under the primary jurisdiction of the superior court. On June 13, 2003, the superior court entered a liquidation order declaring Home insolvent and appointing the commissioner as the liquidator of Home's estate.

Pursuant to RSA 402–C:21, I (2006), RSA 402–C:25, VI (2006) and the superior court's liquidation order, the liquidator is vested with title to and charged with administering and collecting Home's assets for distribution to Home's creditors. All persons asserting claims against Home must file proofs of claim in the New Hampshire liquidation, and the liquidator's ability to collect reinsurance payments on claims made against Home depends upon the timely filing and proving of claims in Home's liquidation. A claim can only be submitted to a reinsurer if it is allowed by Home's estate, a process overseen by the liquidator and the superior court.

RSA 402–C:44 (2006) governs the order of distribution of claims from a liquidated insurer's estate, and establishes classes of claimants as part of the distribution process. After a fifty-dollar per claim deductible, "every claim in each class shall be paid in full or adequate funds retained for the payment before the members of the next class receive any payment." RSA 402–C:44. The statute also provides that "[n]o subclasses shall be established within any class." Id.

RSA 402–C:44 requires that classes of claims against an insolvent insurance company's estate be paid in the following order:

I. ADMINISTRATION COSTS. The costs and expenses of administration, including but not limited to the following: the actual and necessary costs of preserving or recovering the assets of the insurer; compensation for all services rendered in the liquidation; any necessary filing fees; the fees and mileage payable to witnesses; and reasonable attorney's fees.

II. POLICY RELATED CLAIMS. All claims by policyholders, including claims for unearned premiums in excess of $50, beneficiaries, and insureds arising from and within the coverage of and not in excess of the applicable limits of insurance policies and insurance contracts issued by the company....

III. CLAIMS OF THE FEDERAL GOVERNMENT .

IV. WAGES .

(a) Debts due to employees for services performed, not to exceed $1,000 to each employee which have been earned within one year before the filing of the petition for liquidation....

(b) Such priority shall be in lieu of any other similar priority authorized by law as to wages or compensation of employees.

V. RESIDUAL CLASSIFICATION. All other claims including claims of any state or local government, not falling within other classes under this section....

VI. JUDGMENTS. Claims based solely on judgments....

VII. INTEREST ON CLAIMS ALREADY PAID. Interest at the legal rate compounded annually on all claims in the classes under paragraphs I through VI from the date of the petition for liquidation or the date on which the claim becomes due, whichever is later, until the date on which the dividend is declared....

VIII. MISCELLANEOUS SUBORDINATED CLAIMS. The remaining claims or portions of claims not already paid, with interest, as in paragraph VII....

IX. PREFERRED OWNERSHIP CLAIMS. Surplus or contribution notes, or similar obligations, and premium refunds on assessable policies....

X. PROPRIETARY CLAIMS. The claims of shareholders or other owners.

RSA 402–C:44, I–X.

The claims of the AFIA Cedents based upon their pre-liquidation reinsurance contracts with Home fall into the "all other claims" category of Class V. See RSA 402–C:44, V. The claims of BMC, as a policyholder of Home, are in Class II. The superior court determined that it is unlikely that there will be sufficient assets to make distributions to classes beyond Class II. The AFIA Cedents' claims—if paid to Home under the assumption agreement—would constitute the largest single asset in Home's estate and total approximately $231 million. Pursuant to the liquidation order, the AFIA Cedents must submit their claims against Home to the liquidator in order to obtain any recovery.

After liquidation proceedings had commenced, the liquidator proposed an agreement (the proposed agreement) between the Home estate and the AFIA Cedents, under which the AFIA Cedents would be required to submit all of their claims to the liquidator. Once these claims were allowed, the liquidator would submit them to the ACE Companies and other reinsurers of Home to recover reinsurance payments. In exchange for the filing of their claims, the liquidator would distribute a...