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defendants' right to the returns did not attach until after the insolvency. To
allow such set‐offs would permit those policyholders who had financed their
premiums through the defendant to receive a preference over other creditors.
Ninth Circuit
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Alaska
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Quackenbush v. Allstate Ins. Co., 121 F.3d 1372 (9th Cir. 1997). The Ninth
Circuit held that arbitration clauses in the reinsurance contracts of an
insolvent insurer required arbitration of the offset issue.
Melco System v. Receivers of Trans‐America Ins. Co., 268 Ala. 152, 10S So.2d 43 (1958). In
a liquidation proceeding, the question raised was whether or not unpaid
premiums owed from insolvent insurers should be an offset against the
reinsurers' settlement offer. Because the reinsurers debt did not arise until
after the insolvency, the debts of the parties could not be set off against each
other and the reinsurer's claim for premiums must be treated ratably with all
other creditor claims.
King v. Jordan. 601 P.2d 273 (1979). A motorist brought a personal injury against
an insured of an insolvent insurer, also obtained a settlement against her insurer
under the uninsured motorist clause since the other motorist's insurer had
become insolvent. The court awarding damages to the motorist in the personal
injury action held that the award should not be offset by the settlement with
the motorists own insurer. The motorist then filed declaratory judgment action
requiring insurance guaranty fund to pay the personal injury judgment. The
Alaska Supreme Court held that the award entered in motorist's favor should
have been offset by settlement recovered from the motorists own insurer.
Urias v. PCS Health Sys., 118 P.3d 29 (Ariz. Ct. App. 2005). Receiver of an
insolvent health insurer, sued corporation for amounts due under a contract
with insurer. Corporation argued it was entitled to offset the amounts it owed
against sums owed to it by the insurer, under Ariz. Rev. Stat. § 20‐638(A). The
court of appeals held that corporation was entitled to offset debts as “mutual
debts” under Arizona law, as the contract stated that the parties were
independent contractors, not fiduciaries, trustees, or agents.
Downey v. Humphreys, 102 Cal. App. 2d 323, 227 P.2d 484 (1951). The court
permitted a general agent to offset money due the agent from the insolvent
insurer from the unremitted premiums the liquidator sought to recover because
the evidence showed the relationship between the insolvent insurer and
general agent to be debtor and creditor. Had the relationship been trustee and
beneficiary, the court agreed that the defendant would not be permitted to
setoff unearned premiums.
Garrison v. Edward Brown & Sons, 25 Cal. 2d 473, 154 P. 2d 377 (1945). The court
stated that if insurance agents undertook obligations as to remittance of
premiums on insurance policies in a fiduciary capacity, they could not set‐off
personal claims in an action by the insurance commissioner as liquidator of
insurance company for recovery of premiums.
Garrison v. Edward Brown & Sons, 28 Cal.2d 28, 168 P.2d 153 (1946). The
California Supreme Court concluded that the agent could set‐off a sum
representing a debt incurred by the agent as trustee in collecting the premiums
against the amount of the trust fund in his possession. The court, however, also
stated the well‐settled rule that if insurance agents undertook obligations as to
remittance of premiums in a fiduciary capacity, this could not set‐off personal
claims owed to them in such personal capacity against those which they had
assumed as a trustee.
Mission Ins. Co. v. Imperial Cas. & Indemnity Co., 41 Cal. App. 4th 828 (Ct.
App. 1995). The court determined that debts owed to two subsidiaries of