Rhulen Agency, Inc. v. Alabama Ins. Guar. Ass'n., 88 Civ. 9234-CLB.

• Decision Date: 27 June 1989
• Docket Number: No. 88 Civ. 9234-CLB.,88 Civ. 9234-CLB.
• Citation: 715 F. Supp. 94
• Parties: RHULEN AGENCY, INC., Plaintiff, v. ALABAMA INSURANCE GUARANTY ASSOCIATION, et al., Defendants.
• Court: U.S. District Court — Southern District of New York

715 F. Supp. 94

RHULEN AGENCY, INC., Plaintiff, v. ALABAMA INSURANCE GUARANTY ASSOCIATION, et al., Defendants.

No. 88 Civ. 9234-CLB.

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

June 27, 1989.

Jacob Billig, Tepper, DuBois and Billig, Monticello, N.Y., for plaintiff.

Richard Spencer, Stryker, Tams & Dill, Newark, N.J., for all defendants except Maryland G.A.

Edward M. Cohen, Raskin & Rappaport, P.C., New York City, for Maryland G.A.

MEMORANDUM AND ORDER

BRIEANT, Chief Judge.

By motion fully submitted on June 12, 1989, defendants, sued as the respective state guaranty associations protecting the policy holders of Transit Casualty Company ("Transit"), a defunct Missouri corporation, move to dismiss this diversity action for lack of subject matter jurisdiction and/or lack of personal jurisdiction.

Transit was ordered into liquidation by an order of the Circuit Court of Cole County, Missouri, on December 3, 1985.

Except for the Maryland Guaranty Association, which is incorporated, all of the defendant insurance guaranty associations are unincorporated associations established by state legislation (fashioned after the so-called "Model Act," discussed infra), consisting of those insurers who underwrite risks in the state in which the guaranty association exists. There are uncontradicted affidavits on file with respect to each unincorporated association confirming that at least one New York insurer is a member of the association by virtue of the sale of policies in the state in which the association exists, and the payment of dues or charges to the association required to be paid under state law as a result of such sales. Plaintiff Rhulen Agency, Inc. is a New York corporation having its principal office at Monticello in this District.

Upon the agreement of counsel, the Court will consider the motion as directed to the proposed amended complaint found as Exhibit B attached to the brief of plaintiff, docketed June 6, 1989.

The proposed amended complaint seeks to sue each of the associations mentioned in its caption, some 26 in number, and also names as defendants "All of each of the above individual associations' members other than those members who at the date of commencement of this litigation had their place of incorporation and principal place of business in the State of New York."

We now consider the substance of the amended complaint. The complaint alleges that it seeks damages "for violation by the defendants of their statutory duties ... for breach of contract, and for breach of fiduciary duty in violation of constructive trust." (Paragraph 2). The amended complaint (paragraph 33) specifically disclaims an intention to seek judgment "against those member insurance companies of each defendant guaranty association, who at the time of the commencement of this action had their incorporation and sic principal place of business in the State of New York."

Viewing the amended complaint most favorably to plaintiff, it shows that it is an insurance agent or broker with customers throughout the country, that the various defendant guaranty associations are comprised of member insurance companies who are licensed to do business in the particular state in which the guaranty association exists, and that as a condition of doing business in that particular state, each insurance company is required to become a member of the guaranty association.

The purpose for which the guaranty associations are organized, pursuant to their respective state statutes, is to pay claims to resident insureds of insolvent member insurance companies, such as Transit. The members are assessed a percentage of their gross premiums to form a fund or pool from which the guaranty associations pay claims pursuant to their enabling statutes. Ordinarily such payment is made after the state court-appointed rehabilitators have exhausted the assets of the insolvent insurer available within the jurisdiction of the state, and it is pleaded that the member insurance companies of the guaranty associations have notice and knowledge by virtue of their membership that the guaranty associations will pay the claims of insolvent member insurance companies.

Plaintiff placed insurance with Transit for insureds located throughout the country. This insurance was largely related to equine mortality risks. Although not a general agent of Transit, Rhulen Agency did have certain claims management functions which it performed for Transit prior to its demise. Before and after the collapse of Transit, plaintiff advanced payment of claims to its customers insured by Transit, and obtained assignments from the customer-insureds of their rights against Transit and against the defendants in this action. The demand and refusal to pay is adequately pleaded, and plaintiff seeks recovery on various legal theories for the amounts which it advanced to its customers to which it had sold policies placed with Transit.

The first claim (paragraph 65) is based on negligent breach of statutory duty because the guaranty funds did not pay. The second claim alleges a breach of contract by Transit and further alleges that the insolvency of Transit "triggered a statutory mechanism which required the various Guaranty Fund defendants to meet the contractual obligations of the insolvent insurer" (complaint, paragraph 69). The third claim pleaded is for "breach of ... fiduciary duty in violation of the constructive trust." This claim is based on the theory that the pool held by a guaranty association to pay claims for policyholders of member insurers who have become insolvent is a constructive trust for the benefit of policyholders or claimants (complaint, paragraph 75), and that the guaranty associations have a fiduciary duty to manage this trust fund and use it to pay the claims...