In re Teligent Inc., 04 Civ. 6171(JGK).

• Decision Date: 12 May 2005
• Docket Number: No. 04 Civ. 6171(JGK).,04 Civ. 6171(JGK).
• Citation: 324 B.R. 479
• Parties: In re TELIGENT INC., et al., Debtors. Unsecured Claims Estate Representative of Teligent, Inc., et al., Appellant, v. Cigna Healthcare, Inc., Appellee.
• Court: U.S. Bankruptcy Court — Southern District of New York

Page 479

324 B.R. 479

In re TELIGENT INC., et al., Debtors Unsecured Claims Estate Representative of Teligent, Inc., et al., Appellant, v. Cigna Healthcare, Inc., Appellee.

No. 04 Civ. 6171(JGK).

United States Bankruptcy Court, S.D. New York.

May 12, 2005.

Denise Lynn Savage, Savage and Associates, White Plains, NY, for appellant.

Neil Berger, Togut, Segal & Segal, L.L.P., New York City, for Appellee.

OPINION AND ORDER

KOELTL, District Judge.

This is an appeal pursuant to 28 U.S.C. § 158(a)(1) by Savage & Associates, P.C., the Unsecured Claims Estate Representative (the "Representative") for the debtors, Teligent, Inc., et al. (collectively "Teligent"). The Representative seeks review of the May 27, 2004 bench decision and subsequent Order dated June 10, 2004, in which the Bankruptcy Court granted summary judgment to the appellee, Cigna Healthcare ("Cigna") and dismissed the Representative's amended complaint against Cigna. (See Ex. S at 94-101; Ex. Q.¹) In that decision, the Bankruptcy Court found that Teligent had assumed a group insurance contract issued by Cigna to provide health and dental benefits for Teligent's employees. The Representative, seeking the recovery of pre-petition and post-petition transfers made by Teligent to Cigna, contends that the original insurance contract executed in January 1998 could not be assumed because each re-rating of the insurance contract gave rise to a new and separate contract, and that the original contract had terminated before it was allegedly assumed. The Bankruptcy Court rejected the Representative's argument. The Bankruptcy Court found that the alleged preference payments made by Teligent to Cigna in connection with the insurance contract were payments on a single insurance contract, which had never terminated, and that Teligent assumed the insurance contract in October 2002. (See Ex. S at 94-101.) The Representative now appeals the Bankruptcy Court's determination.

I.

The following facts are undisputed unless otherwise noted.

Teligent, Inc. was the ultimate parent corporation of twenty domestic subsidiaries, all debtors and debtors in possession before the Bankruptcy Court, as well as many non-debtor foreign subsidiaries. In re Teligent, Inc., 282 B.R. 765, 766 (Bankr.S.D.N.Y.2002). Prior to the May 21, 2001 petition date, the debtors were primarily engaged in providing telecommunications services to wholesale and retail customers. Id. at 766-67. In or about January 1998, Teligent and Cigna executed the Teligent Group Insurance Policy 2253887/242337 (the "Policy") to provide group medical and dental insurance services to Teligent, its employees, and their dependents.² (See letter dated Oct. 20, 2000 from Michael W. Drago to John Barrett at A122.³) The Policy was originally issued in and subject to the laws of Virginia (see Policy at A125) and later modified in October 2000 to be "sitused" in Delaware effective January 1 2001. (See letter dated Oct. 20, 2000 from Michael W. Drago to John Barrett at A122.) The Policy included, among other things, provisions concerning changes in premium rates. (See Policy at A138-39.) Under the heading "Changes in Premium Rates," the Policy provided that:

Any premium rate may be changed by the Insurance Company from time to time with at least 31 days advance written notice. No such change will be made until 12 months after the Effective Date....

The Insurance Company may change rates immediately if, following the latter of the effective date or renewal date, the enrolled population either increases or decreases by 15% or more.

As of any Anniversary Date after the policy has been in force for 12 months, the Insurance Company may grant a credit in such amount as it may determine, based on experience. The experience under this policy may be combined with the experience under other contracts issued by the Insurance Company or its affiliates and covering the policyholder or its employees.

(Policy at A138.)

Moreover, either party had the right to cancel the Policy under certain conditions. (See Policy at A140, A146-47.) Below the heading entitled "Cancellation of Policy," the Policy provided:

The Policyholder may cancel the policy as of any Premium Due Date by giving written notice to the Insurance Company before that date.

The Insurance Company may cancel the policy as of any Premium Due Date if the number of Insured Employees is less than 25 or less than 75% of those eligible. Dependent Insurance may be cancelled as of any Premium Due Date if the number of Employees insured for their Dependents is less than 75% of those eligible.

If a premium is not received at the Home Office or by an authorized agent of the Insurance Company when due, the policy will be automatically cancelled as of the Premium Due Date, except as set forth below....

If, before a Premium Due Date, the Policyholder has not given written notice to the Insurance Company that the policy is to be cancelled, a Grace Period of 31 days will be granted for the payment of each premium after the initial premium. The policy will stay in effect during that time. If any premium is not received at the Home Office or by an authorized agent of the Insurance Company by the end of the Grace Period, the policy will be automatically cancelled at the end of the Grace Period; except that, if the Policyholder has given written notice in advance of an earlier date of cancellation, the policy will be cancelled as of the earlier date. The Policyholder will be liable to the Insurance Company for any unpaid premium for the time the policy was in force[.]

(Policy at A140.)

The Policy was amended by the parties periodically (see Policy at A146-A154), and the Policy includes an amendment dealing specifically with cancellation. According to this amendment, effective January 1, 1998:

The Insurance Company may cancel the policy due to the following reasons only:

with at least 90 days prior written notice, if the Insurance Company ceases to offer coverage of this type, in accordance with applicable State or Federal Law;

as of any Premium due date, if the premium is not received at the Home Office or by an authorized agent of the Insurance Company when due;

immediately, if the Employer has performed an act or practice that constitutes fraud or has intentionally misrepresented a material fact;

as of any Premium due date, if the number of insured Employees or if the number of insured Dependents fails to meet the minimum required per group participation rules; or for failure to comply with other material plan provision relating to Employer contributions or group participation rules;

if the Insurance Company withdraws from the health insurance market with prior written notice and in accordance with applicable state or Federal Law;

in accordance with any applicable state law, if it is determined that the size of the Employer group has changed, making such group eligible for a guaranteed issued small group product;

in accordance with any applicable state or Federal Law, if prior notice is given to the Employer....

Coverage will cease at midnight on the date on which termination occurs, unless otherwise stated above.

Uniform Modification of Coverage. At renewal, the provisions of this policy may be modified to reflect product revisions which have been uniformly made to this product.

(Policy at A147; see also Ex. C, Affidavit of Anthony J. Crean, sworn to Dec. 3, 2002 ("Crean Aff.") ¶¶ 6, 7.)

On May 21, 2001, the Debtors filed a voluntary petition for bankruptcy under Chapter 11 of the United States Bankruptcy Code. Notwithstanding Teligent's bankruptcy petition, both Teligent and Cigna continued to perform their respective obligations under the Policy. As the Bankruptcy Court noted in its January 8, 2004 Memorandum Decision, "Between September 1, 2002 and October 31, 2003, Cigna processed approximately 5,811 claims arising under the [Policy], issuing 4,230 checks in the aggregate amount of $1,016,926.00." In re Teligent, Inc., 306 B.R. 752, 760 (Bankr.S.D.N.Y.2004) (citing Crean Aff. ¶ 2.).

In or around October 2001, Teligent retained insurance broker Mark Lynne of Bolton, Offutt & Donovan ("BOD"), to assist Teligent in renewing the Policy and to investigate potential insurance coverage by alternative insurance providers.⁴ Employees at Teligent and Cigna, along with Mark Lynne, engaged in email exchanges regarding the Policy. (See A157-A165.) The Representative relied on these emails to support her contention that the Cigna Policy was terminated in December, 2001 and that subsequent contracts were entered into in 2002.

On October 18, 2001, Cathy L. Proctor, a Client Manager for Cigna sent an email to Christine Wolf, who appears to be an employee at Teligent,⁵ to check on "the current status of Teligent" and to ask which broker at BOD was handling the renewal of the Policy on behalf of Teligent. (A158.) In this email, Ms. Proctor noted that, "As we look to the renewal, it would be helpful to know if you need a proposal for [January 1] and the number of assumed insureds by the first of the year." (Id.)

On October 25, 2001, Ms. Proctor answered the email response sent by Ms. Wolf on October 18, 2001 regarding the renewal of the Policy. (A157.) Ms. Proctor noted that she was attaching informal spreadsheets to the email and that the effective date of January 1, 2002 was approaching. (Id.) Ms. Proctor noted that this was a "difficult renewal" and that Teligent's claims were continuing to outpace premiums. (Id.) Ms. Proctor described "the current enrollment at the time of the rerate was 2,144 (April [2001]) falling to 1,167 as of Sept [2001]." (Id.) Ms. Proctor cautioned that if Teligent's enrollment increased or decreased by 15% or more from the enrollment assumptions used in establishing the rates, or if there were any changes in state or federal law which would impact benefit levels, Cigna reserved the right to revise the rates and fees. (Id.)

On December 11, 2001, Mr....