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The question presented was whether federal taxes are costs of
administration under the priority structure of the North Carolina Insurance
Insolvency Statute. The court held that taxes accrued before liquidation
cannot be considered administrative expenses because they accrued long
before an estate was being administered. The taxes accrued after liquidation
are administrative expenses. For tax purposes, the earned income from
insurance premiums is spread over the life of the policy, thus, income taxed
subsequent to the year the premium is actually paid is still real income. The
income taxes accrued in 1990 and 1991, for premiums already paid to
Northwestern, constituted administrative expenses because there was a
liquidation order at the time of the accrual. Therefore, the court granted
summary judgment for the United States, holding that under the North
Carolina Statute when taxes accrued after the court entered a liquidation
order, those taxes should be considered administrative expenses entitled to
first priority.
Fifth Circuit
Barnhardt Marine Ins., Inc. v. New England International Surety of America,
Inc., 961 F.2d 529 (5th Cir. 1992). An insurance broker brought an action to
recover from insolvent insurer unearned premiums paid by the broker on
cancelled policies. New England International Surety of America (NEISA)
was placed in liquidation and under the control of the Commissioner of
Insurance. The policies placed by the broker were canceled resulting in the
loss of premiums. The broker refunded the premiums to his clients and
brought action after acquiring their rights as subrogee. The broker’s action
was dismissed from federal court due to the Burford doctrine. The court
reasoned that the existence of administrative procedures in the state
precluded the federal action. The court concluded that the allegations
should be resolved in the state liquidation proceeding.
Miller v. National Fidelity Life Ins. Co., 588 F.2d 185 (5th Cir. 1979). The court
held that the McCarran Act did not preclude application of the Federal
Arbitration Act. The court found that the test under McCarran is not whether
the state has enacted statutes regulating the business of insurance, but
whether such state statutes will be invalidated, impaired or superseded by
application of federal law.
Munich American Reinsurance Company; NAC Reinsurance Corporation v.
John P. Crawford, as Receiver of Employers National Insurance Corporation,
(5 th Cir. 6/2/98) 141 Fed. 3 rd 585; 1998 U.S. App. LEXIS 11366 The Fifth Circuit
affirmed a district court finding that the Federal Arbitration Act was reverse
pre‐empted by Oklahoma law under the McCarran Ferguson Act and the
dismissal of the petition to compel arbitration. The case arose out of a
dispute over salvage proceeds obtained subsequent to the payment of a loss
arising under a reinsurance agreement between Employers National
Insurance Corporation (ENIC) and Munich American Reinsurance Company
(“Munich”) and NAC Reinsurance Corporation (“NAC”). Prior to the
recovery of the salvage proceeds, ENIC was placed into liquidation.
Pursuant to the liquidation order, ENIC’s attorneys remitted the proceeds to
the Liquidator. Munich and NAC disputed the Liquidator’s claim to the funds
and sought to compel arbitration by filing a petition in federal district court.
Crawford responded by filing a motion in state court to enjoin the arbitration
pursuant to the injunction in the state court Liquidation Order. When the
state court determined that Munich and NAC’s petition violated the
Liquidation Order, the federal district court dismissed the arbitration
proceeding, asserting Burford abstention.