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creditors and stockholders, the Attorney General, on information of the
insurance commissioner, applied for the appointment of a receiver. In denying
the Attorney General's petition for the appointment of receiver, the court held
that the pending action would accomplish all that was sought by the Attorney
General and that the court has jurisdiction to enjoin an insolvent insurance
company and to appoint a receiver upon the petition of creditors and
stockholders of an insolvent insurance company.
Exclusive Remedy
Fifth Circuit
Barnhardt Marine Ins., Inc. v. New England International Surety of America,
Inc., 961 F.2d 529 (5th Cir. 1992). Insurance broker brought action as subrogee
against insolvent insurer and its president and chairman of the board to
recover unearned premiums paid after insolvency. Citing the McCarran‐
Ferguson Act, 15 U.S.C. § 1011, the court affirmed an administrative stay
pending resolution of all proceedings in the state liquidation court on the
grounds of Burford abstention. Burford v. Sun Oil, 319 U.S. 315, 63 S. Ct. 1098
(1943). The action against the president and chairman of the board individually
for mismanagement and undercapitalization was also properly stayed,
because the derivative claim involved the same assets which the Commissioner
was required to collect and distribute in the liquidation proceeding. Pursuit of
those claims in federal court would "usurp" Louisiana's control over the
liquidation proceeding, permit plaintiff to obtain an unfair advantage over
other claimants, and "encroach" into the Commissioner's exclusive power as
liquidator.
Health Net, Inc. v. Wooley, 534 F.3d 487 (5th Cir. 2008). Texas, Oklahoma, and
Louisiana receivers successfully brought suits against Health Net, Inc., claiming
breach of fiduciary duty, fraud, and conspiracy, all to the detriment of an
insolvent insurer in receivership. The receivers obtained compensatory and
exemplary damages. Health Net then sought an injunction to block the verdict
and awards against it on the grounds that the judgments were obtained by
fraud. The receivers acknowledged in the appeal that ex parte communications
with the judge had taken place. The Louisiana Court of Appeals dismissed
Health Net, Inc.’s injunction request but placed sanctions on the receivers’
counsel. The court of appeals affirmed the injunction dismissal and vacated the
sanctions on the grounds that Louisiana’s state laws regarding insurer
insolvency may necessitate some ex parte communications. Furthermore, the
involvement of the federal courts in this process would disrupt the state’s
treatment of insolvent insurers. Both the Younger and Burford abstention
doctrines apply in this case.
Tenth Circuit Grimes v. Crown Life Ins. Co., 857 F.2d 699 (10th Cir. 1988), cert denied, 489
U.S. 1096, 109 S. Ct. 1568. The insurance commissioner, as receiver of an
insolvent carrier, sought to interpret the provisions of a reinsurance contract in
state court. The reinsurance carrier removed the action to federal district
court which declined to remand the action and decided the merits of the case.
In reversing the decision of the district court, the United States Court of
Appeals for the Tenth Circuit held that the State of Oklahoma had "adopted a
comprehensive scheme to oversee the liquidation of insolvent insurers" and,
therefore, the district court should have abstained from exercising its
jurisdiction in the matter. 857 F.2d at 705.
Arkansas
Baldwin‐United Corp. v. Garner, 283 Ark. 385, 678 S.W.2d 754 (1984). The
insurance commissioner, as receiver of three insolvent insurance companies