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association's directors for monies wrongfully retained pursuant to a scheme by
such directors to take over the Association's assets by reason of a reinsurance
contract with another company organized by the directors. The court held
that the insurer is entitled to a lien on the stock held in trust. Further, the court
concluded that establishing this lien would not interfere with the conduct of
the insurer's business nor would the court supervise the operation of the
insurer, as the court merely established a legal right in favor of the insurer for
those who were rightfully entitled to such a lien. Further, the monies received
are to be received as a special fund in trust for the benefit of any policyholders
who have converted their assessment policies into legal reserve policies on a
date‐back basis and who paid an extra year's premium covering the cost of
conversion.
In re Liquidation of Mile Square Health Plan of Illinois, 218 Ill. App. 3d 674,
578 N.E.2d 1075 (Ill. App. Ct. 1991), superseded by statute, 215 ILCS 5/191
(West 1996). Notwithstanding the insolvency of an insurance company, an
attorney may assert a viable possessory lien for the value of his or her unpaid
services without breaching his or her ethical duties as an attorney. While
there are circumstances under which asserting such a lien would be
unethical, an attorney may assert a retaining lien in competition with other
creditors where the property of the client is to be distributed ratably among
the client's creditors by a trustee or liquidator.
In the Matter of the Liquidation of Prestige Cas. Co., 276 Ill. App. 3d 698, 659
N.E.2d 50 (Ill. App. Ct. 1995). Out of concern for fees that could be lost, the
law firm retained the files of a former client that had been placed into
receivership as a lien against the legal fees money the company owed the
law firm. The court held that once the Liquidator posted security the law
firm could not refuse to turn over the files.
Schacht v. Cadillac Ins. Co., 1991 U.S. Dist. LEXIS 11606 (N.D. Ill. Aug. 20, 1991).
The Illinois Director of Insurance filed a complaint against an insolvent
insurer, alleging that it made illegal transfers of funds from other insolvent
insurers in violation of Section 204(3) of the Illinois Insurance Code. The
court first rejected Cadillac's argument that the court should abstain from
asserting its jurisdiction under the Burford abstention doctrine. Although
the transfers were made from two Illinois insolvent insurers, now in
conservation proceedings, to a Michigan insolvent insurer, in liquidation
proceedings in Michigan, the federal court's exercise of jurisdiction would
not interfere with the state liquidation courts' equitable distribution powers.
With respect to the Director's voidable preference claim, the court held that
the fact that the first conservation complaint was dismissed by agreed order
(although a second complaint was filed) did not affect the classification of
the transfer as a voidable preference, since that transfer occurred within
two years of the filing of the complaint. § 204(3) of the Illinois Insurance
Code imposes liability for preferential transfers of assets upon those who
participate in the transaction "on behalf of" the Cadillac, corporation. While
not explicitly alleging that defendant acted "on behalf of" his corporation,
the pleadings were sufficiently detailed to allow for such an inference.
Therefore, the court denied defendant's motion to dismiss for failing to
state a cause of action.
Kansas
Sebelius v. Universe Life Ins. Co., No. 98‐4114‐RDR, 1999 U.S. Dist. LEXIS 2284 (D.
Kan. Feb. 9, 1999). Applying the principles of abstention under the McCarran‐
Ferguson Act and the Burford doctrine, the court remanded to state court a
case in which an insurance commissioner and a deputy rehabilitator brought an
action in their capacities as rehabilitators for an insolvent insurer. The insolvent
insurer sought to avoid, as alleged preferences, certain transfers of assets to a