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einsurance 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.
Seventh Circuit
Cummings Wholesale Electric Company, Inc. v. Homeowner's Insurance
Company, 492 F. 2d 268 (7th Cir. 1974), cert denied, Delphie Community School
Building Corporation v. Northeastern Ins. Co. of Hartford, 419 U.S. 883.
Claimants under surety bonds issued by an Illinois insolvent insurer sought to
recover from three reinsurers of the insolvent company. The obligor under the
surety bonds in question had also gone bankrupt. Under a specific Indiana
statute for surety business, an insurer, including the insolvent Illinois company,
could not write surety bonds that are in excess of 10% of its capital and surplus,
unless the reinsurance that was arranged for the bond specifically named the
obligee or beneficiary of the bond. While recognizing that such a provision
existed in the reinsurance relationship in the current circumstance, the court
held that the Indiana legislature did not intend to give such claimants
preference over the general creditors of an insolvent insurance company, the
court holding that the direct cause of action against reinsurers did not survive
the commencement of liquidation proceedings and the claimants were left to
their claims in the Illinois liquidation proceeding.
Keehn v. Excess Ins. Co. of America, 129 F.2d 503 (7th Cir. 1942). In a suit by the
receiver to recover upon a reinsurance contract, the court held that the
receiver was barred from an action against the reinsurer because the insolvent
insurer failed to give notice of loss in accordance with the reinsurance contract,
and a receiver acquires no greater rights than those had by the insolvent
company at the time of appointment of the receiver.
Eighth Circuit
Ainsworth v. General Reinsurance Corporation, 751 F.2d 962 (8th Cir. 1985). A
reinsurer of an insolvent Missouri insurer was held liable to the receiver for the
amount of the insolvent insurer's liability under the insolvency clause of the
reinsurance agreement, where the reinsurer, although having a right to defend
against a claim, had no right to reduce its obligation by taking advantage of the
insured's willingness to take less because of the insolvency. Although the
reinsurer's claim settlement also released the receiver from any further liability
on the claim, the direct payment by the reinsurer violated the insolvency clause
and reduced the assets in the insolvent insurer's estate.
Gallinger v. North Star Hospital Mutual Assurance Ltd., et al., 64 F.3d 422, (8 th
Cir. 1995). North Star was organized as a Bermuda‐based captive to provide
liability insurance to a group of hospitals in several states. Later, North Star
contracted with Great Global Assurance Company to front the offering of
primary insurance. Great Global was subsequently declared insolvent and
put into receivership. The Receiver sued North Star in its capacity as a
reinsurer and sought to pierce the corporate veil to its member hospitals for
contribution to the insurer. Alternative theories of breach of contract,
conspiracy, promissory estoppel and unjust enrichment were pled. The trial
court granted summary judgment dismissing the claims of the Receiver and
she appealed. The appellate court affirmed the decision of the trial court on
all points.
North River Ins. Co. v. Walker, 65 F.2d 116 (8th Cir. 1933). In a suit for the
recovery of accrued and unpaid losses under a reinsurance arrangement, the
court found that the outstanding policies of the insolvent insurer were
cancelled upon the adjudication of insolvency and the appointment of a
receiver, and thus, a claim for a loss accruing after the insolvency was not a
provable claim against the insurer and nothing was due under the reinsurance