In re Receivership of International Reinsurance Corporation

• Decision Date: 18 March 1946
• Citation: 48 A.2d 529,29 Del.Ch. 34
• Court: Court of Chancery of Delaware
• Parties: In the Matter of the Receivership of INTERNATIONAL REINSURANCE CORPORATION, a Delaware corporation

48 A.2d 529

29 Del.Ch. 34

In the Matter of the Receivership of INTERNATIONAL REINSURANCE CORPORATION, a Delaware corporation

Court of Chancery of Delaware, New Castle

March 18, 1946

[Copyrighted Material Omitted]

C Edward Duffy, for the Receivers.

Alfred C. Bennett, of New York City, also filed a brief for the Superintendent of Insurance for the State of New York in support of some of the exceptions filed.

OPINION

HARRINGTON Chancellor.

The creditors were not represented.

Because of the many difficult questions raised by the exceptions, the Chancellor referred the determination of the entire matter to Edwin D. Steel, Jr., an attorney-at-law of Wilmington, as a special master, and directed him to report his conclusions to the court.

The master filed the following report which considered all of the questions raised:

Receivers were appointed by the Chancellor of Delaware for International Re-Insurance Corporation, a Delaware corporation, on April 19, 1933, pursuant to Section 3883 of the Revised Code of Delaware of 1915. Inasmuch as International had conducted a casualty and surety business in nearly all states of the Union, receivers were also appointed in twenty-three (23) ancillary proceedings throughout the country.

On October 19, 1939, the Chancellor appointed a special master to pass upon the claims filed in the Delaware receivership proceeding. The special master has filed his report, recommending the allowance of fourteen (14) claims. The receivers excepted to the recommendation of the special master with respect to nine (9) of these claims.

This opinion is addressed to the validity of the receivers' exceptions.

Stated broadly, the claimants fall into two categories:

First, persons who have filed claims based upon judgments recovered by them subsequent to the appointment of receivers, against persons insured under policies issued by International, or by other companies whose obligations International has assumed. These claims are based upon the alleged fact that the assured is insolvent, and for that reason the injured persons are entitled to recover against International under the so-called "insolvency clauses" which the policies are said to contain.

Second, persons who have filed claims based upon judgments which have been obtained against assureds which have been fully satisfied of record by the claimants upon payment to them by the assureds of amounts substantially less than the full amounts of the judgments. These claims are limited to the difference between the amount of the judgment and the amount paid to the claimant by the assured.

While the foregoing classifications describe generally the character of the claims dealt with by the special master, a consideration of the claims themselves reveals important factual distinctions which must be heeded if a proper disposition of the claims is to be made. As a consequence, the claims will be considered seriatim.

Claim No. 3,745 -- Gussie Freundlich.

The proof of claim reveals that claimant was injured in an accident which occurred on August 20, 1929 in New York as a result of a collision between a bus owned and operated by Monticello New York Reliable Coach Co. (hereinafter referred to as "Monticello") and a car in which claimant was riding; that on December 1, 1933 -- subsequent to the appointment of receivers by this court -- a judgment in the amount of $ 22,664.20 was recovered in the state court of New York by claimant against Monticello, a certified copy of such judgment being annexed to the proof of claim.

The receivers filed exceptions to the proof of claim which alleged:

"That said claimant has no claim against International Re-Insurance Corporation, its receivers or its assets, and was so advised by letter addressed to claimant's attorney dated 9-29-43."

The letter dated September 29, 1943, from the receivers which is referred to in the exceptions (as amended by letter of November 4, 1943) states:

"I note from the proofs of claim that they are based upon a judgment returned against the Monticello New York Reliable Coach Company on December 1st, 1933. International Re-Insurance Corporation entered receivership on April 19th, 1933 and it is the opinion of the Receivers, based upon the controlling decisions and rulings of the Chancery Court of the State of Delaware, that they are not bound by judgments taken after the date of receivership as the basis of a claim against assets in their possession.

"The facts contained in our files clearly indicate that the accident upon which the claim is based was due to the carelessness and negligence of the driver of the Chevrolet car in which your client was riding. The Receivers therefore have no alternative but to take exception to these claims and bring the matter on for hearing before the Special Master appointed to hear disputed claims * * *." ^[1]

At the hearing before the special master the receivers conceded that Monticello was insured at the time of the accident by a policy upon which International is liable "if a proper claim is made." At the same time, claimant conceded that the policy was limited to $ 5,000 for an accident involving one person, and to $ 10,000 for an accident involving more than one person.

The receivers, however, objected to the allowance of the claim "because it was based upon a judgment obtained after receivership."

The attorney for the claimant stated that he had never seen the policy under which Monticello was insured; and the attorney for the receivers stated that the receivers did not have the policy -- the assured had it.

No evidence was introduced by the claimant or by the receivers. At the conclusion of the hearing, the special master continued it "to a date hereafter to be set and notice to the attorneys for the claimant by the Receivers, with instructions of the Special Master to file a memorandum on the legal point involved."

So far as I have been able to ascertain, no further hearing was held upon the claim.

The special master recommended the allowance of the claim in the amount of $ 5,000. To this recommendation the receivers excepted upon six grounds. These will be considered in the order stated by the receivers.

Exception 1. -- The claim is based upon a judgment obtained against Monticello subsequent to the date of the appointment of receivers for International, which judgment cannot be used as a basis for a claim against the assets in the hands of the receivers.

At the hearing it was conceded by the receivers that:

"* * * The Monticello New York Reliable Coach Company was insured at the time of the accident by an insurance policy upon which International Re-Insurance Corporation is liable to pay if a proper claim is made * * *."

This statement was made in connection with a claim by an injured party against the insurer. The only reasonable interpretation, therefore, to place upon the statement is that the policy which International had issued to Monticello contained provisions of some kind which would enable the injured party, under circumstances not specifically disclosed, to recover against International provided a "proper claim" was made. The only provision of an insurance policy authorizing an injured party to recover against an insurer, which I have seen in the multitude of cases which I have read is the so-called "insolvency clause." I must assume, therefore, that the concession which the receivers made at the hearing is tantamount to an admission that the policy issued by International to Monticello contained an "insolvency clause" of some kind.

Although the terms of the policy issued to Monticello are not revealed, the master cites the following provision as an example of the "insolvency clause" contained in certain of the International policies:

"Insolvency or bankruptcy of the insured hereunder shall not relieve the company from payment of damages for injuries sustained or loss occasioned while this policy is in full force and effect. In case execution against the insured is returned unsatisfied in an action brought by the injured person, or his or her personal representative in case death results from the accident, because of such insolvency or bankruptcy, an action may be maintained by the injured persons, or his or her personal representative, against the company under the terms of the policy for the amount of the judgment in the said action not exceeding the amount of this policy."

For purposes of considering the legal question raised by the receivers' first exception, I shall assume that the policy issued to Monticello contained the "insolvency clause" above quoted, and that claimant offered in support of his claim, not only a certified copy of the judgment against Monticello which is attached to the claim, but also evidence that execution on the judgment was issued and returned unsatisfied. ^[2]

The question raised by Exception No. 1 may be stated as follows: Should a claim by an injured party be allowed against an insolvent insurer, based upon an "insolvency clause", when the only evidence to support the claim is a judgment of claimant against the assured recovered after the appointment of receivers for the insurer, it appearing that execution has issued on the judgment and been returned unsatisfied?

The receivers contend that a claim based upon such a judgment should not be allowed, but that the injured party should be required to prove in the receivership proceeding by evidence other than the judgment that the insured was liable to the injured party. The special master reached a contrary conclusion.

In general, I agree with the conclusion of the master and with the reasons he has assigned for his views. By way of supplement to the opinion of the master, the following considerations,...