Stephens v. American Home Assur. Co.
| Decision Date | 26 January 1993 |
| Docket Number | No. 91 Civ. 2898 (JSM) (KAR),91 Civ. 2901 (JSM) (KAR) and 91 Civ. 6245 (JSM) (KAR).,89 Civ. 2999 (JSM) (KAR),91 Civ. 2898 (JSM) (KAR) |
| Parties | Don W. STEPHENS, Commissioner of Insurance of the Commonwealth of Kentucky, in his capacity as Liquidator of Delta America Re Insurance Company, Plaintiff, v. AMERICAN HOME ASSURANCE COMPANY, et al., Defendants. Don W. STEPHENS, Commissioner of Insurance of the Commonwealth of Kentucky, in his capacity as Liquidator of Delta America Re Insurance Company, Plaintiff, v. AMERICAN RISK MANAGEMENT, INC., et al., Defendants. Don W. STEPHENS, Commissioner of Insurance of the Commonwealth of Kentucky, in his capacity as Liquidator of Delta America Re Insurance Company, Plaintiff, v. NATIONAL DISTILLERS AND CHEMICAL CORPORATION, et al., Defendants. Don W. STEPHENS, Commissioner of Insurance of the Commonwealth of Kentucky, in his capacity as Liquidator of Delta America Re Insurance Company, Plaintiff, v. AMERICAN INTERNATIONAL INSURANCE COMPANY, et al., Defendants. |
| Court | U.S. District Court — Southern District of New York |
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William F. Costigan, Anderson Costigan, New York City, James L. Gay, W. Henry Jernigan, Jr., Kevin M. McGuire, Jackson & Kelly, Lexington, KY, Jeffrey G. Steinberg, Serchuk & Zelermyer, White Plains, NY, David Klingsberg, Alan Goott, Michael Braff, Kaye, Scholer, Fierman, Kays & Handler, New York City, for plaintiff.
Patrick Watts, Gen. Counsel, Kentucky Dept. of Ins., Frankford, KY, for William W. Barton, Jr., James E. Dickinson.
Atty. Gen. of Ky., Robert V. Bullock, Asst. Atty. Gen., Frankfort, KY, for Daniel D. Briscoe, Gil McCarty.
Robert M. Watt, III, Stoll, Keenon & Park, Lexington, KY, William G. Primps, LeBoeuf, Lamb, Leiby & MaCrae, New York City, for American Risk Management, Inc., Frederick M. Reiss, Arthur H. Deters, Bryan D. Murphy, John J. Ryan.
Joseph Dailey, Lauren Selznick, Breed, Abbot & Morgan, New York City, Wyatt, Tarrant & Combs, Louisville, KY, Dandridge F. Walton, William A. Carey, Jeanne M. Box, Alagia, Day, Marshall, Mintmire & Chauvin, Frankfort, KY, for Quantum Chemical Corp. (National Distillers and Chemical Corp.).
William G. Primps, LeBoeuf, Lamb, Leiby & MaCrae, New York City, for International Risk Management Ltd., European Risk Management Ltd., Transnational Risk Management Ltd., Transnational Risk Management (Guernsey) Ltd.
John R. Oller, Wilkie, Farr & Gallagher, New York City, John T. Ballantine, Ogden, Sturgill and Welch, Louisville, KY, Dandridge F. Walton, William A. Carey, Jeanne M. Box, Alagia, Day, Marshall, Mintmire & Chauvin, Frankfort, KY, Joseph Dailey, Lauren Selznick, Breed, Abbot & Morgan, New York City, for Robert E. Norton.
Dandridge F. Walton, Jeanne M. Box, Alagia, Day, Marshall, Mintmire & Chauvin, Frankfort, KY, Joseph Dailey, Lauren Selznick, Breed, Abbot & Morgan, New York City, for John C. Aldin, F. Donald Brigham, Hugh C. Brewer, III, Roger W. Hill, Jr., Ramsey E. Joslin, Robert E. Norton, John F. Salisbury.
T. Bruce Bell, Fowler, Measle & Bell, Lexington, KY, for Richard F. Maynes, Terrence J. Reilly.
Charles D. Greenwell, D. Randall Gibson, Middleton & Reutlinger, Louisville, KY, Thomas P. Parry, Donovan Parry Walsh & Repetto, New York City, for American Home Assur. Co., National Union Fire Ins., Birmingham Fire Ins. Co., Commerce & Industry Ins. Co. of Canada, The Ins. Co. of the State of Pennsylvania.
Mark R. Feather, Brown, Todd & Heyburn, Louisville, KY, for Universal Reinsurance Corp., Syndicate 33, I.N. Thomson, Syndicate of Lloyds of London, Irish Nat. Ins. Co., PWS Group, Continental Ins. Co.
Cynthia B. Maddox, David A. Brill, Goldberg & Simpson, Louisville, KY, for Fremont Indem. Co.
Thomas R. Newman, Thomas M. Bower, Newman & Bower, P.C., New York City, for Aegis Indem. Ltd., Bakerlooe Ins. Co., Ltd., Berda Developments Ltd., Brittany Ins. Co., Ltd., Centennial Assur. Co., Ltd., Conoplex Ins. Co., Ltd., Constantine Ins. Co., Ltd., Elco Ins. Co., Ltd., Elwood Ins., Ltd., General Ins. Co. Ltd., Horizon Ins. Co., Ltd., Riscott Ins. Ltd., Ross Ins., Ltd., Sperry Ins. Co., Ltd., Three Rivers Ins. Co., Trochus Ins. Co. Ltd., Twinsurance Ltd., United Ins. Co., ver Bes' Ins. Co., Westburne Ins. Co.
John M. Newman, Jr., Jones, Day, Reavis & Pogue, Cleveland, OH, for Saturn Ins. Co., Ltd.
Robert H. Werbel, Werbel, McMillin & Carnelutti, New York City, for Trafford Park Ins., Ltd.
William G. Primps, LeBoeuf, Lamb, Lieby & MacRae, New York City, for Transnational Ltd.
David Hebbeler, Edward Boyle, Perry Kreidman, Wilson, Elser, Maskowitz, Edelman & Dicker, New York City, for Arion Ins. Co., Ltd., Assubel Accidents et Dommages, Bradesco Seguros (formerly Atlantica CIA National de Seguros), Banco de Seguros del Estado (also known as BSE Banco de Seguros Del Estado), Caisse Mutuelle D'Assurances et de Prevoyance, Central Reinsurance Corp., Chiyoda Fire & Marine Ins. Co., Ltd., CIA Internacional de Seguros, Hassneh Ins. Co. of Israel, Ltd., Instituto de Resseguros do Brazil , Korean Reinsurance Corp., Kyoei Mutual Fire & Marine Ins. Co., Ltd., Presence Assurances, Mingtai Fire & Marine Ins. Co., Ltd., The Nippon Fire & Marine Ins. Co., Ltd., Overseas Union Ins. Ltd., Pohjola Group, Seguros la Provincial, S.A., SNL Ins., Ltd. (in liquidation), Transport Industries Ins. Co., Ltd.
Elliott M. Kroll, Mark S. Fragner, S.M. O'Brien, III, Kroll & Tract, New York City, for Canadian Union Ins. Co., Chung Kuo Ins. Co.
Leo W. Fraser, III, Mendes & Mount, New York City, for Ca de Seguros Orinoco, C.A. Reaseguradora Internacional del Orinoco, Fuji Fire and Marine Ins. Co., Ltd., Ins. Co. of the USSR, Ltd., Owens Ins., Ltd., Provident Assur. Co.
Larry W. Thomas, Cameron & Hornbostel, New York City, Gregory J. Bendlin, Cameron & Hornbostel, Washington, DC, for Companhia Bandeirante de Sequros Gerais (Bandeirante) and Grupo de Empresa's Segura-doras Brasileiras (GESB).
Kevin Cavalere, Jackson & Nash, Frances Phillips, Adams, Duque & Hazeltine, James Veach, Mound, Cotton & Wollan, New York City, Craig C. Corbitt, Furth, Fahrner & Mason, San Francisco, CA, for Elizabeth Wright on counterclaim.
Background
Elkhorn Reinsurance Company ("Elkhorn") was incorporated in Kentucky on October 7, 1965, for the purpose of insuring the property and casualty risks of National Distillers and Chemical Corporation, now known as Quantum Chemical Corporation ("Distillers"). In 1972 Elkhorn expanded its business and began assuming reinsurance risks of unrelated third parties. Elkhorn's outside business consisted of reinsuring these primary insurers and ceding portions of risks it took on to secondary reinsurers, also known as "retrocessionaires."
On September 30, 1983, Distillers sold a portion of Elkhorn to Delta Holdings, Inc. ("Delta Holdings"). Under the sale agreement Elkhorn was reorganized into two corporations, DR Insurance Company and Delta America Re Insurance Company ("Delta Re"). DR Insurance Company was retained by Distillers to operate the captive insurance business of Distillers, and Delta Holdings obtained Delta Re to operate its business of reinsuring risks of unrelated third parties. In this opinion, "Delta Re" will sometimes be used to refer to both Elkhorn Reinsurance Company, i.e. the entity existing before September 30, 1983, and Delta America Re Insurance Company, the entity existing after such date, when such reference is appropriate.
In 1985, Delta Re was declared insolvent. After a brief period of rehabilitation, the company was placed in liquidation proceedings on September 15, 1985. Don W. Stephens, in his capacity as liquidator (the "Liquidator"), has instituted these four actions, as well as others, in connection with the insolvency proceedings. The following is a brief summary of each action:1
1. Stephens v. National Distillers & Chem. Corp., 91-Civ-2901 (The "Distillers" case)
The Liquidator seeks recovery from Distillers of dividends paid by Elkhorn from 1981 to 1983, claiming that Elkhorn's insolvency during that period renders such dividends illegal. Summary judgment was granted to the Liquidator on this claim by a Kentucky state court, which judgment is the subject of a motion here.
The Liquidator also named certain retrocessionaires who reinsured Elkhorn/Delta Re before 1984 (the "Elkhorn Retrocessionaires"), seeking full coverage under the reinsurance contracts between them and the insolvent. The Elkhorn Retrocessionaires defend on the basis of fraud and seek rescission.
2. Stephens v. American Risk Management, 89-Civ-2999 (The "ARM" case)
The Liquidator seeks coverage from certain retrocessionaires who signed reinsurance contracts with Delta Re in 1984 and 1985 ("Delta Re Retrocessionaires"). As in the Distillers case, the Delta Re Retrocessionaires defend on the basis of fraud and seek rescission. If such relief is granted, the Liquidator seeks to hold liable, inter alia, persons who managed Delta Re after the sale ("Management Defendants"). These Management Defendants have impleaded Distillers and certain officials of the Kentucky Department of Insurance.
3. Stephens v. American Home Assurance Co., 91-Civ-2898 (The "American Home" case)
The Liquidator seeks premiums from companies which ceded insurance risks to Delta Re in 1984 and 1985 (the "Delta Re Cedents"). As in the ARM case, the Delta Re Cedents claim fraud and seek rescission, and the Liquidator named Management Defendants in the alternative, who impleaded Distillers and Kentucky officials. The Kentucky officials, however, were dismissed by the Kentucky Federal District Court before it transferred this case here, which dismissal is contested.
4. Stephens v. American International, 91-Civ-6245 (The "American International" case)
The Liquidator seeks premiums from ceding companies contracting with Elkhorn before 1984 (th...
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