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as an offset against the insolvent insurer is the law identified in the underlying
insurance policy under which the counterclaim is made. The Court did not
agree, once the insurer was placed in liquidation, that all proceedings would be
governed by the law of the domicile, regardless of past agreements to the
contrary.
South Carolina
Grambell v. Cox, 250 S.C. 228, 157 S.E.2d 233 (1967). The court held that the
conduct of the agency following the insolvency, such as procuring new
insurance contracts for its clients, cannot create a right of set‐off. Any right of
set‐off must exist at the time of the insolvency.
In re Banks, 85 S.C. 37, 67 S.E. 19 (1910). It was held that a policyholder of an
insolvent mutual insurer cannot offset any claims against the insurer from the
receiver's claim for assessments.
Tennessee
Ewing v. Coffman, 80 Tenn. (12 Lea) 79 (1883). The owner of life policy took
out loan against the policy, secured by a mortgage. All assets of the insurer
were then transferred to a second company. The insured assented to a new
contract with the second company. The second company thereafter became
insolvent, and a receiver was appointed in Tennessee. The receiver sued to
collect the loan debt and foreclose the mortgage. The insured asserted a right
to set‐off premiums paid to both companies against the debt. The court held
that all rights against the first company were surrendered when the new
contract was assented to, and that no right of set‐off existed, among other
reasons, because the insurer's insolvency did not void the policy.
Insurance Premium Services, Inc. v. Wood, 57 Tenn. App. 514, 420 S.W.2d 595
(1967). Upon learning of the impending insolvency, a Tennessee agent
procured new policies in a solvent company for the agent's clients. It was held
that the agent did not have a right to offset the unearned premiums due the
agent's customers against the claim of the Indiana liquidator, since the policies
were not cancelled by operation of law until the Indiana company was
declared insolvent by the Indiana court.
McReynolds v. Cherokee Ins. Co., 896 S.W.2d 137, 1994 Tenn. App. LEXIS 530
(Tenn. Ct. App. 1994). A reinsurer was a wholly owned subsidiary of the parent.
The reinsurer’s business was secured through letters of credit from a third
party. When the third party failed to furnish a letter of credit, the parent orally
agreed to provide a replacement letter of credit. When the reinsurer was placed
into receivership, all proceedings against the reinsurer were enjoined, and the
receiver was appointed. The receiver attempted to draw down the letter of
credit, and the parent filed an action to enjoin the bank from honoring the letter
of credit. The parent was charged with contempt. The receiver filed an action
against the parent and the bank for release of the letter of credit funds, and the
parent filed a counterclaim based on the oral side agreement. The chancery
court entered summary judgment for the receiver. The parent appealed, and
the court affirmed, holding that any claim by the parent against the reinsurer on
the oral side agreement had to be pursued in a separate action. Under
Tennessee Code § 47‐5‐114, the letter of credit was an independent contract to
be honored as written, so whether the funds were held as a constructive trust
was unnecessary to litigate in this action.
McReynolds v. Cherokee Ins. Co., 815 S.W.2d 201 (Tenn. Ct. App. 1990).
Insolvent insurer's estate brought an action against agencies to recover unpaid
premiums. The lower court permitted the agencies to set‐off the insurer's
profit sharing obligations against the agencies' debts for unpaid premiums. In
affirming the lower court's decision, the court of appeals held the following:
(1) that where insurance agencies had a right to their share of the profits on
insurance, even though the amount of such profits were not to be ascertained