Superintendent of Ins. of State of N.Y. v. International Equipment Leasing, Inc.

• Decision Date: 03 April 1991
• Citation: 588 A.2d 883,247 N.J.Super. 119
• Parties: SUPERINTENDENT OF INSURANCE OF the STATE OF NEW YORK as Liquidator of Union Indemnity Insurance Company of New York, Plaintiff-Appellant, v. INTERNATIONAL EQUIPMENT LEASING, INC., Defendant-Respondent.
• Court: New Jersey Superior Court — Appellate Division

Page 119

247 N.J.Super. 119

588 A.2d 883

SUPERINTENDENT OF INSURANCE OF the STATE OF NEW YORK as Liquidator of Union Indemnity Insurance Company of New York, Plaintiff-Appellant, v. INTERNATIONAL EQUIPMENT LEASING, INC., Defendant-Respondent.

Superior Court of New Jersey Appellate Division.

Argued Nov. 27, 1990.

Decided April 3, 1991.

Robert E. Mensel, for plaintiff-appellant (Hanlon, Herzfeld & Rubin, attorneys, Robert E. Mensel, of counsel and on the brief, Edison).

Charles W. Cipolla, Englewood Cliffs, for defendant-respondent.

Before Judges MICHELS, BRODY and GRUCCIO.

The opinion of the court was delivered by

MICHELS, P.J.A.D.

We granted leave to plaintiff Superintendent of Insurance (Superintendent) of the State of New York as liquidator of Union Indemnity Insurance Company (Union Indemnity) to appeal from an order of the Law Division that denied its motion for summary judgment with respect to the counterclaim filed by defendant International Equipment Leasing, Inc. (International) for costs, counsel fees and punitive damages. At issue is whether the claims asserted by International against the out-of-state liquidator of an insolvent insurance carrier can be brought in a state other than the state in which the liquidation proceedings were instituted. The trial court held as a matter of law that the counterclaim was properly brought in the Law Division. We disagree and reverse.

On July 16, 1985, the Honorable Ira Gammerman, Justice of the Supreme Court of the State of New York, County of New York, adjudged Union Indemnity insolvent and appointed the Superintendent as liquidator. The Superintendent instituted this action in the Law Division against International to collect premiums for insurance coverage provided by Union Indemnity. International counterclaimed for costs, counsel fees and punitive damages. The trial court granted International's motion for summary judgment, thereby dismissing the Superintendent's claim. The trial court also granted the Superintendent's cross-motion to strike International's counterclaim but on reconsideration, reinstated the counterclaim. Thereafter, the Superintendent moved for summary judgment, seeking a dismissal of the counterclaim on the ground that New Jersey law requires pursuit of any claim against the liquidator in the State of New York court which ordered the liquidation. As a separate and independent basis for summary judgment, the Superintendent argued that the counterclaim essentially alleged malicious use of process, not fraud, and as an action for malicious use of process, it failed to state a claim upon which relief could be granted. The trial court denied the motion, holding that the counterclaim was properly brought in the Law Division and that genuine issues of material fact with respect to the substantive claim existed. This appeal followed.

Both New Jersey and New York adopted the Uniform Insurers Liquidation Act ("Act"), N.J.S.A. 17:30C-1 et seq.; N.Y.Ins.Law § 7401 et seq. (Consol.1985), and therefore, are reciprocal states under the Act. N.J.S.A. 17:30C-1(f); N.Y.Ins.Law § 7401. "The Act provides for a uniform, orderly and equitable method of making and processing claims against defunct insurers and provides for a fair procedure to distribute the assets of defunct insurers." Ballesteros v. New Jersey Property Liab. Ins. Guar. Assoc., 530 F.Supp. 1367 (D.N.J.), aff'd, 696 F.2d 980 (3d Cir.1982).

The Superintendent monitors the financial health of all domestic insurance companies. The Superintendent may seek a liquidation order in the trial court. N.J.S.A. 17:30C-2; N.Y.Ins.Law § 7404, 7421. Grounds for a liquidation order include insurer insolvency, refusal to cooperate in the Superintendent's regulatory oversight or a finding that further transactions will be hazardous to policyholders, creditors or the public. N.J.S.A. 17:30C-8; N.Y. Ins.Law § 7404. The liquidation order directs the Superintendent to take possession of the insurer's property and to liquidate the business.

The court may direct the Superintendent to manage the insurer's property in the insurer's name or in the Superintendent's name. The order vests the Superintendent with title to all of the insurer's property, excluding assets located in reciprocal states that have appointed ancillary receivers, and rights to all of the insurer's contracts and causes of action. N.J.S.A. 17:30C-9; N.Y.Ins.Law §§ 7405, 7410(b). New Jersey defines "reciprocal state" as:

any state other than this State in which in substance and effect the provisions of the Uniform Insurers Liquidation Act, as defined in section 23 of this act are in force, including the provisions requiring that the commissioner or equivalent insurance supervisory official be the receiver of a delinquent insurer. [ N.J.S.A. 17:30C-1(f) ].

New York defines "reciprocal state" in a similar manner. N.Y.Ins.Law § 7401.

After ordering the insurance company into liquidation, the court maintains continuing jurisdiction over the liquidation proceedings to ensure that the Superintendent's office properly discharges its duties. Lac D'Amiante du Quebec, Ltee. v. American Home Assurance Co., 864 F.2d 1033, 1040 (3d Cir.1988). When issuing the liquidation order or at any time thereafter, the court may issue an order declaring the insurer insolvent. N.J.S.A. 17:30C-30; N.Y.Ins.Law § 7432(a). The court may also dissolve the corporate existence of the insurer if certain statutory grounds for such an action are present. N.J.S.A. 17:30C-8; N.Y.Ins.Law § 7416. In addition, the court may enjoin the insurer or its agents from interfering with the Superintendent's liquidation. N.J.S.A. 17:30C-5; N.Y.Ins.Law § 7419(b).

While the Superintendent is collecting the insurer's assets and protecting the insurer's estate from suits, the Superintendent also processes claims made against the insurer's estate. The Act provides that anyone who may possess a claim against an insurer in liquidation shall present them to the Superintendent within four months from the date of the liquidation order. N.J.S.A. 17:30C-30; N.Y.Ins.Law § 7432. Claims of non-residents may be filed with an ancillary receiver in a reciprocal state. N.J.S.A. 17:30C-18; N.Y.Ins.Law §§ 7411, 7412.

New York law provides an orderly procedure for claims against the Superintendent. N.Y.Ins.Law § 7411. New Jersey has a similar procedure. N.J.S.A. 17:30C-18. A claimant initiates the process by filing a proof of claim setting forth the particulars with the Superintendent. The Superintendent refers disputed claims, which cannot be resolved quickly, to a court appointed referee. The referee for the Union Indemnity liquidation is the Honorable Hyman Korn, a former State of New York judge. Judge Korn, and all liquidation referees, conduct hearings and take evidence in accordance with the New York civil practice rules. The referee's report and recommendation are subject to review by the court presiding over the liquidation. Dissatisfied claimants have full rights of appeal from adverse decisions. See, e.g., In re Liquidation of Consol. Mut. Ins. Co., 60 N.Y.2d 1, 466 N.Y.S.2d 663, 453 N.E.2d 1080 (1983).

Here, the terms of the liquidation order do not foreclose International from bringing its claim in New York. The order merely requires International to follow N.Y.Ins.Law § 7411 by filing its claim within the liquidation proceeding. Thus, the New York forum is available to International and as a matter of New Jersey law, is the only forum for this matter.

By adopting the Act, both the New Jersey and New York Legislatures expressly recognized that the orderly liquidation and distribution of assets of an insolvent insurance company requires centralized management of the delinquency proceeding in one state. Murphy v. Ambassador Ins. Co., 195 N.J.Super. 274, 281, 478 A.2d 1243 (Ch.Div.1984); Ballesteros v. New Jersey Property Liab. Ins. Guar. Assoc., 530 F.Supp. 1367. See also Lac D'Amiante du Quebec, Ltee. v. American Home Assurance Co., 864 F.2d 1033. State liquidation proceedings best effectuate their purpose of fairly and efficiently winding up the affairs of an insolvent company when free from the interference of outside courts. In Blackhawk Heating & Plumbing Co., Inc. v. Geeslin, 530 F.2d 154, 159-60 (7th Cir.1976), the court explained that:

States have a paramount interest in seeing that liquidation proceedings conducted by court-appointed liquidators and overseen by their courts are free from the interference of outside agencies. This interest is of even greater importance when the company undergoing liquidation is a domestic insurance company or other financial institution. The interests of the company's owners, policyholders, and creditors, as well as the public, are best served and protected by an orderly and efficient process of liquidation. The liquidation [of an insolvent insurer] is best left to a proceeding which will settle all of its affairs and dispose of all of its property. [Other] courts should refrain from deciding select issues confronting another court in pending proceedings. [citations omitted].

Courts have long recognized the need for giving one state exclusive jurisdiction over delinquency proceedings.

Experience has demonstrated that, in order to secure an economical, efficient, and orderly liquidation and distribution of the assets of an insolvent corporation for the benefit of all creditors and stockholders, it is essential that the title, custody, and control of the assets be intrusted to a single management under the supervision of one court. Hence other courts, except when called upon by the court of primary jurisdiction for assistance, are excluded from participation. This should be particularly true as to proceedings for the liquidation of insolvent insurance companies, for the reasons adverted to by Mr. Justice Cardozo in Clark v. Williard, 292 U.S. 112, 54 S.Ct. 615, 78 L.Ed. 1160 [1934]. [Ballesteros v. New Jersey Property Liab. Ins. Guar. Assoc., 530...