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Assets of the Insolvent Insurer's Estate
Assets of the Estate ‐ In General
First Circuit
Second Circuit
Third Circuit
Fifth Circuit
MRCo., Inc. v. Ins. Comm. of Puerto Rico, 521 F.3d 88 (1st Cir. 2008). Where a
claimant sought return of funds loaned to the insurer just prior to liquidation,
the federal court held that the liquidator, rather than any court, has the
exclusive authority in the first instance to determine what constitutes an
“asset” of the insurer.
In re First Cent. Fin. Corp., 377 F.3d 209 (2d Cir. 2004). The liquidator brought an
adversary proceeding for a determination that a federal income tax refund held
by a Chapter 7 trustee for the insolvent insurer’s corporate parent should not be
included in the parent’s bankruptcy estate, but instead should be turned over to
the liquidator. The court held that a constructive trust could not be imposed on
the refund because a written agreement existed covering allocation of taxes,
and the parent’s estate was not unjustly enriched by the bankruptcy trustee’s
retention of the refund.
Fidelity & Deposit Co. of Maryland v. Hunt, 107 F.2d 42 (3rd Cir. 1939). The
insurance commissioner liquidating an insurance company is required to
liquidate, as an asset, a claim for alleged embezzlement against the company's
president and to maintain a lien on the stock of the president.
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.
Martin Insurance Agency, Inc. v. Prudential Reinsurance Company, 910 F.2d 249
(5th Cir. 1990). After the insolvency of Transit Casualty Insurance Company, a
Missouri domiciliary, the plaintiff insurance agency paid the
policyholder/claimants and sought reimbursement directly from reinsurers. The
reinsurance certificates at issue contained standard insolvency clauses, requiring
payment to the receiver in the event of insolvency of Transit; thus, the
reinsurance proceeds could be considered assets of the estate. Further, the
reinsurers were exposed to double liability because claims to the reinsurance
would likely be asserted both by plaintiff and by the receiver. Although the
court found that it had subject matter jurisdiction, it found that the action
should nevertheless be dismissed based on the abstention doctrine of Burford
v. Sun Oil, 319 U.S. 315, 63 S. Ct. 1098 (1943), without prejudice to plaintiff's right
to re‐assert the claim in the Missouri liquidation court.
Eighth Circuit
Ainsworth v. General Reinsurance Corp. 751 F.2d 962 (8th Cir. 1985). A reinsurer
sought to reduce its obligation to the estate of an insolvent carrier by making a
settlement directly with the insured and without allowing the receiver to