Matter of American Mutual Insurance
| Decision Date | 01 June 2001 |
| Docket Number | 08332 |
| Citation | 434 Mass. 272 |
| Parties | IN THE MATTER OF THE LIQUIDATION OF AMERICAN MUTUAL LIABILITY INSURANCE COMPANY & another.(FN1)Massachusetts Supreme Court |
| Court | United States State Supreme Judicial Court of Massachusetts Supreme Court |
County: Suffolk.
Present: Marshall, C.J., Greaney, Ireland, Spina, Cowin, Sosman, & Cordy, JJ.
Summary: Statute, Retrospective statute. Due Process of Law, Retroactive application of statute. Insurance, Insolvency of insurer. Massachusetts Insurers Insolvency Fund. Subrogation. Contract, Reinsurance agreement. Set-Off.
Civil action commenced in the Supreme Judicial Court for the county of Suffolk on January 17, 1989.
A motion for approval of a plan of liquidation, filed on May 14, 1999, was heard by Judith A. Cowin, J., and questions of law were reported by her.
Eric A. Smith, Special Assistant Attorney General (J. David Leslie, Special Assistant Attorney General, with him) for Commmissioner of Insurance.
Alan J. Cooke for California Insurance Guarantee Association & others, amici curiae.
Daniel G. Jarcho (Kelly L. Wilkins with him) for Liggett Group Inc.
Rhonda L. Rittenberg (Susan E. Grondine with her) for New England Reinsurance Corporation & another.
A single justice of this court has reserved and reported four questions of law concerning the amended plan of liquidation of American Mutual Liability Insurance Company (AMLICO) and American Mutual Insurance Company of Boston (AMI) (collectively, American Mutual), which came before the county court on a motion for approval by the Commissioner of Insurance (commissioner), acting as the permanent receiver (receiver) of American Mutual.2
1. The questions. The questions reserved and reported to this court are as follows:
2. The answers. For the reasons set forth later in this opinion, we answer these questions as follows. Question (a) concerns whether the priority accorded workers' compensation claims in G. L. c. 175, § 180F, as amended after the March 9, 1989, liquidation date of American Mutual, applies retroactively, effectively ensuring no recovery for the objectors (Liggett Group Inc. and Avondale Mills, Inc.). We conclude that it does. As to question (b), we hold that the same priority applies to claims presented by MIIF and other guaranty funds and associations (guaranty funds) that are attributable to covered claims under policies of workers' compensation insurance.
We answer question (c) in the negative, in the absence of a sufficient basis in the common law to conclude that case reserves and incurred but not reported reserves (IBNR) established by insurers reinsured by American Mutual, may be used as offsets3 against amounts presently due and owing from such insurers as reinsurers of American Mutual. As to question (d), we conclude that the requisite mutuality for offset does not exist between obligations of AMLICO as reinsurer of First State, and obligations of NERCO as reinsurer of AMLICO.
3. Reported questions (a) and (b).
Background. American Mutual, property and casualty insurers domiciled in Massachusetts, wrote primarily workers' compensation, general liability, and automobile lines of insurance for both commercial and personal lines policyholders. On March 9, 1989, pursuant to G. L. c. 175, §180C,4 a single justice entered an order of liquidation, appointment of permanent receiver and permanent injunction (liquidation order), decreeing that American Mutual was insolvent, and appointing the commissioner as receiver. See Matter of the Liquidation of Am. Mut. Liab. Ins. Co., 417 Mass. 724, 725-726 & n.3 (1994) (Liquidation of AMLICO).
Most claims under policies of insurance issued by American Mutual are being handled by MIIF, a guaranty fund established by G. L. c. 175D, § 3, and at least forty-five other guaranty funds established in other jurisdictions.5 Pursuant to G. L. c. 175D, §§ 1 (2) and 5, MIIF pays any covered claims that are unpaid and that arise out of and are within the coverage of an insurance policy (to which G. L. c. 175D applies) issued by an insurer that subsequently becomes insolvent if (a) the claimant or insured is a resident of the Commonwealth; or (b) the property from which the claim arises is permanently located in the Commonwealth. Guaranty funds in other jurisdictions are required by their respective statutes to pay comparable claims. See, e.g., Cal. Ins. Code § 1063.1(c)(1) (Deering 1992 & Supp. 2001); Conn. Gen. Stat. § 38a-838(6) (2000); D.C. Code Ann. § 35-3901(6) (1997); Fla. Stat. § 631.904(2) (Supp. 2001).
Unless a claim arises out of a workers' compensation policy, MIIF pays only "that amount of each covered claim which . . . is less than" $300,000. G. L. c. 175D, § 5 (1) (a). MIIF is required to pay claims arising under workers' compensation policies, without limit. Id. Persons recovering from MIIF pursuant to G. L. c. 175D are deemed to have assigned the rights under their policies to MIIF, but retain the right to recover from the receiver any amounts under the coverage of their policies not paid by MIIF. G. L. c. 175D, § 8 (1). Once MIIF has paid a claim, the receiver is required to grant to MIIF "priority equal to that which the claimant would have been entitled in the absence of [G. L. c. 175D]." G. L. c. 175D, § 8 (2). This right to assume the priority of the claimant is granted to guaranty funds in other jurisdictions as well. See, e.g., 215 Ill. Comp. Stat. § 5/545(b) (1999); Me. Rev. Stat. Ann. tit. 24-A, § 4442 (2000); Va. Code Ann. § 38.2-1609(B) (1999).6
On March 22, 1989, an order entered in the county court requiring that creditors of American Mutual file proofs of claim with the receiver by March 9, 1990. Because the guaranty funds, including MIIF, are the largest creditors of American Mutual, they are in a position to receive the bulk of the distributions from the American Mutual estates.7
The priority of payment for allowed claims is governed by G. L. c. 175, § 180F (Supp. 2001). At the time of the March 9, 1989, liquidation order, the order of priorities read as follows:
G. L. c. 175, § 180F, as amended through St. 1985, c. 745, § 20.
Section 46A of G. L. c. 175 provides a priority for workers' compensation claims in Massachusetts insolvency proceedings. At the time the liquidation order was issued, § 46A read:"When any domestic company which has insured the payment of the compensation provided for by [G. L. c. 152] becomes insolvent . . . unpaid losses under its workmen's compensation policies shall, in the distribution of its assets, whether liquidation is effected by a receiver or otherwise, be deemed and treated as preferred over all claims except debts due the United States and debts or taxes due the commonwealth or any city or town thereof."
There was at that time no statutory provision that explicitly reconciled the priority scheme in § 180F with that provided in § 46A.8
On July 12, 1989, approximately four months after the liquidation order of American Mutual was issued, the Legislature
amended the priority clauses of § 180F to make explicit reference to § 46A as follows:
"(4) Claims by policyholders, 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, and claims presented by [MIIF], [MLHIGA], or any similar organization in another state; provided, however, that the workers' compensation claims afforded a preference in [§ 46A] shall be treated as preferred only as respects all other claims in this clause" (emphasis added).
G. L. c. 175, § 180F, as amended through St. 1989, c. 237, § 12. This statutory amendment became effective by emergency declaration on July 14, 1989. In the emergency letter the Governor declared: "[I]t is in the public interest that this Act [St. 1989, c. 237,] take effect immediately in order to materially assist in confirming the priorities to be ascribed to the claims of creditors in pending proceedings involving insolvent insurers."...
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