Liquidation of Integrity Ins. Co., Matter of

• Citation: 555 A.2d 50,231 N.J.Super. 152
• Parties: In the Matter of the Liquidation of INTEGRITY INSURANCE COMPANY.
• Decision Date: 22 September 1988
• Court: Superior Court of New Jersey

Page 152

231 N.J.Super. 152

555 A.2d 50

In the Matter of the Liquidation of INTEGRITY INSURANCE COMPANY.

Superior Court of New Jersey, Chancery Division Bergen County.

Decided Sept. 22, 1988.

Steven S. Radin, for the liquidator of Integrity Ins. (Sills, Cummis, Zuckerman, Radin, Tishchman & Epstein, attorneys, Steven S. Radin of counsel, Steven S. Radin and Davis J. Howard, Newark, on the brief).

Eugene R. Anderson, admitted pro hac vice, for Allied Signal (Anderson, Russell, Kill & Okick, attorneys, Eugene R. Anderson of counsel; Alan J. Shmaruk, New York City, on the brief).

Warren J. Martin, Jr. for Clark Equipment Co. and 18 policyholders (Riker, Danzig, Scherer, Hyland & Perretti, attorneys, Warren J. Martin, Jr. and Shawn L. Kelly, Morristown, of counsel and on the brief).

David H. Remes, admitted pro hac vice, for Armstrong, Boeing (Covington & Burling, attorneys, David H. Remes, Washington, D.C., on the brief).

David L. Menzel, for the New Jersey Property-Liability Ins. Guar. Ass'n (Stryker, Tams & Dill, attorneys, David L. Menzel of counsel, David L. Menzel and Susan Murr, Newark, on the brief).

James M. Mulvaney, for Sur. Reinsurers (McElroy, Deutsch & Mulvaney, attorneys, James M. Mulvaney of counsel, Margaret F. Catalano, Morristown, on the brief).

William F. Jerome, New York City, admitted pro hac vice, for the Superintendent of Ins. of the State of New York as ancillary receiver of Integrity Ins.

Andrew J. Cevasco, for Western Lloyds Ins. Co. (Herten, Burstein, Sheridan & Cevasco, attorneys, Andrew J. Cevasco, Hackensack, on the brief).

James B. Manning, for the Integrity Directors (Carpenter, Bennett & Morrissey, Newark, attorneys).

MEEHAN, J.S.C.

This motion was brought before the court by Clark Equipment Company and 18 other creditors and policyholders (hereinafter, the "policyholders") of Integrity Insurance Company in Liquidation (hereinafter, "Integrity") for an order:

(1) establishing a policyholders' committee to represent policyholders in this proceeding;

(2) empowering the policyholders' committee to retain counsel, accountants and other professionals, as well as providing standing to commence and maintain litigation on behalf of the Integrity estate; and,

(3) authorizing the costs of the policyholders' committee, including those of counsel and experts, to be charged as expenses of administration of the Integrity estate, subject to the review and approval of the court.

In support of their application, the policyholders rely upon:

(1) the assertion that this court has the general equitable power to create such a committee;

(2) the Federal Bankruptcy Code provisions governing the appointment and powers of a creditors' committee in a chapter 11 reorganization are consistent with the public policy of having creditors participate in the liquidation; and,

(3) insurance insolvency precedent.

Objections to this application have been filed by the liquidator and deputy liquidator, the New Jersey Property-Liability Insurance Guaranty Association, the Superintendent of Insurance of the State of New York as ancillary receiver of Integrity Insurance Company and Surety Reinsurers.

The arguments advanced in opposition to the application include assertions that:

(1) the court lacks authority to create a policyholders' committee;

(2) the Federal Bankruptcy Code does not provide authority or precedent for the establishment of a policyholders' committee; and,

(3) movants have failed to establish the necessity and purpose for such a committee.

The procedural history in this case is as follows. On December 30, 1986, the Commissioner of Insurance of the State of New Jersey (hereinafter, the "Commissioner") filed a verified complaint for the rehabilitation of Integrity. On March 24, 1987, this court entered an order of liquidation, which was amended on March 25, 1987, placing Integrity into liquidation and terminating the rehabilitation phase of the delinquency proceeding. Pursuant to the New Jersey Rehabilitation and Liquidation Act, N.J.S.A. 17:30C-1 et seq., Kenneth D. Merin, the Commissioner of Insurance of New Jersey, was vested with all the powers and authority under the statute to marshal and liquidate the assets of Integrity.

Since the entry of the order of liquidation, the Commissioner, in his capacity as liquidator, through the deputy liquidator, has been marshalling the assets of the Integrity estate and evaluating the outstanding claims against the estate for ultimate distribution to policyholders, guaranty associations, and other claimants.

The movants contend that a policyholders' committee is required to allow policyholders to protect their interests in this proceeding. They claim that they have not been informed as to the progress of the case, nor have they been given the opportunity to participate in negotiations and are unaware of the status of commutations. Movants further allege that they are unaware of the financial status and administration of the Integrity estate.

Dealing first with the issue of whether this court has the authority to create a policyholders' committee, pursuant to the Chancery Court's broad equitable power, as well as N.J.S.A. 17:30C-4d, which provides that the court may grant

such ... relief as the nature of the case and the interest of the policyholders, creditors, stockholders, members, subscribers, or the public may require,

it is clear that this court is empowered and authorized to create the type of policyholders' committee sought by movants. See Sosanie v. Pernetti Holding Corp., 115 N.J.Super. 409, 279 A.2d 904 (Ch.1971); In re Appointment of Vice Chancellors, 105 N.J.Eq. 759, 148 A. 570 (Ch.1930). As noted in 19A Appleman, Insurance Law and Practice (1982), § 10654:

[A] court of equity, by virtue of its supervision over all phases of a liquidation, possesses full discretion to permit or deny an application for intervention. The court may permit policyholders, or others interested in the administration of the assets, to appear, represent their own interests, and be made parties. While a statutory procedure for the disposition of claims may be valid, it is desirable to protect all creditors, wherever situated.... [at 90-91]

However, simply because the authority exists does not mean that it must be utilized. The court must exercise its discretion in resolving the issue so as to serve the interests of all concerned parties in the most equitable and just manner.

The Rehabilitation and Liquidation Act, N.J.S.A. 17:30C-1, et seq. (hereinafter, the "act") provides the procedures to be used to liquidate or rehabilitate an insurer. There is no specific provision in the act which addresses the situation before this court. Accordingly, the court must look to the express provisions of the act and the legislative intent behind the act in resolving the issue presented.

N.J.S.A. 17:30C-3 provides that "[d]elinquency proceedings pursuant to this Act shall constitute the sole and exclusive method of liquidating, rehabilitating, reorganizing or conserving an insurer" and that only "the commissioner shall be vested by operation of law, with the title to all property, contracts, and rights or action ... of the insurer." N.J.S.A. 17:30C-15(b).

The statute is designed to provide a comprehensive, orderly and efficient procedure for liquidating insurance companies while protecting the rights of all interested parties. The act appoints the Commissioner as the person in exclusive control over the proceeding, with guidance provided by the court. N.J.S.A. 17:30C-5(b). Pursuant to N.J.S.A. 17:30C-17, the Commissioner is authorized to appoint "one or more special deputy commissioners to act for him, and may employ such counsel, clerks and assistants as he deems necessary."

The act sets forth the powers, duties and obligations of the liquidator in great detail. The statutory function of the Commissioner and/or the deputy liquidator is to weigh all the interests and to perform an efficient and fair liquidation of Integrity. The Commissioner and deputy liquidator are subject to a fiduciary obligation to all policyholders and creditors of Integrity and to the supervision of the court pursuant to N.J.S.A. 17:30C-2.

The movants initially make claims that the Commissioner and deputy liquidator may have in the past and may in the future, violate their statutory and fiduciary responsibilities. Such allegations were withdrawn by the time of oral argument. This court finds that movants have failed to establish any such allegations.

This court recognizes that, at the outset of this proceeding, and at the time this motion was originally filed, some of movants' positions may have been warranted. However, certain developments that have taken place since that time have provided for some of what movants seek. Movants, the court and the liquidator are primarily concerned with insuring the proper and efficient administration of the Integrity estate. Movants contend that they are entitled to have knowledge of all matters affecting the estate and the right to participate in this proceeding to achieve that goal. Although movants claim they have a right to notice, the act provides that notice is required in only six circumstances: (1) N.J.S.A. 17:30C-7(c) requires notice to the Commissioner of an application by a third party for an order terminating a rehabilitation and allowing the insurer to resume the possession of its property and the conduct of its business; (2) N.J.S.A. 17:30C-9(a) requires notice to the creditors of the entry of an order of liquidation and the procedure for submitting claims to the liquidator; (3) N.J.S.A. 17:30C-19(b)(2) requires notice from a claimant to a domiciliary receiver if the claimant intends to prove his claim in an ancillary proceeding, and also requires notice from the domiciliary receiver to the ancillary receiver and the claimant if the domiciliary receiver intends to contest the claim; (4) N.J.S.A. 17:30C-20(c) requires notice...