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court granted the motion. On appeal, the issue was whether a preferential
transaction entered into more than four months before the filing of a petition
for liquidation was voidable under § 56‐9‐317(a)(2)(B) if it were made within four
months before the filing of a petition for rehabilitation. After determining that
the meaning of the phrase “the petition” in § 56‐9‐317(a)(2)(B) referred only to
petitions for liquidation, the court held the transfer at issue was not a voidable
preference under § 56‐9‐317(a)(2)(B) because the petition for liquidation was
not filed until more than seven months after the transfer.
Utah Wasatch Crest Ins. Co., in Liquidation v. LWP Claims Adm’rs Corp., 158 P.3d 548
(Utah 2007). The liquidator of two insolvent insurance companies filed an
action to recoup from an affiliate of the two insurance companies funds that
said companies paid to the affiliate for claims handling purposes. The liquidator
argued that the funds were distributions made to an affiliate within five years
preceding the liquidation, and therefore, could be recouped by the liquidator
pursuant to statute. The supreme court rejected the liquidator’s argument. The
sums paid to the affiliate were not distributions to an affiliate that controlled
the insurer. Rather, the court reasoned, they were payments to an affiliate to
provide services. Moreover, the affiliate did not meet the definition of
“Affiliate” in the statute because it did not control the companies as required by
the statute. Similarly, the term “distribution” in the statute was not met
because the term only applies to dividends or other transfers of equity.
Therefore, the court held that the payment for services were not distributions
to an affiliate that could be recouped by the liquidator.
Setoffs and Counterclaims
Wilcox v. Anchor Wate Co., 164 P.3d 353 (Utah 2007). The receiver of Southern
American Insurance Company (“SAIC”), in receivership, filed suit against Anchor
Wate Co. (“Anchor”) alleging that pre‐receivership payments made by SAIC to
Anchor were voidable preferences within the meaning of the Utah insurance
receivership statutes. The alleged preference arose from settlement of a suit
filed by Anchor against SAIC, its insurer, for bad faith refusal to defend and
settle another lawsuit. SAIC settled the claim for policy limits, received funds
from its reinsurer therefore, and made substantial payments to Anchor to
satisfy the settlement. Shortly thereafter, SAIC entered receivership. The
receiver argued that the payments were a voidable preference because in
transferring the property, Anchor received a greater percentage of its debt
from SAIC then did other creditors of the same class. The supreme court held
that the reinsurance proceeds were assets of the SAIC estate and were not
“earmarked” or held in a constructive trust for Anchor. Transferring these
assets to Anchor constituted a voidable preference, and to hold otherwise
would grant Anchor direct access to reinsurance proceeds of the insolvent
insurer’s estate.
Wilcox v. CSX Corp., 70 P.3d 85 (Utah 2003). The supreme court addressed the
issue of whether federal bankruptcy law should be used to interpret the
voidable preference provisions of the Utah insurance receivership statutes, and
whether a voidable preference occurred when an insurance company settled a
claim for an antecedent debt shortly before insolvency. The court held that
without legislative history on point, it would follow the reasoning of the
Seventh Circuit and turn to federal bankruptcy law for guidance. In so holding,
the court defined the nature of an antecedent debt under Utah insurance
receivership statutes, as well as the requirements to establish statutory
affirmative defenses based on contemporaneous consideration and the
ordinary course of business. The court found that a voidable preference had in
fact occurred in the settlement of an antecedent debt shortly before
receivership and that no statutory affirmative defenses applied.