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preliquidation assets that could be set off against the preliquidation debts of
the insolvent insurer to the reinsurers.
People ex rel. Hershey v. Cosmoplitan Ins. Co., 89 Ill. App. 2d 225 (1967). A
policyholder unsuccessfully brought suit against rehabilitator for collection of
reinsurance proceeds received from reinsurer claiming that the rehabilitator
was only a collecting agent for the policyholder and, in the alternative, that the
reinsurance contract was actually coinsurance. The reinsurance contract
specifically provided that in the event the reinsured became insolvent, claims
to be paid by reinsurer were payable to the liquidator.
Pioneer Life Ins. Co. v. Alliance Life Ins. Co., 374 Ill. 576 (1940). Plaintiff issued
policy on life of individual and entered into a facultative reinsurance contract
(called a reinsurance policy) with Peoria who subsequently went into
receivership. Defendant entered into reinsurance agreement with receiver of
Peoria, for all "reinsurance contracts" of Peoria. Defendant did not renew the
reinsurance treaty between Plaintiff and Peoria. However, court found
assumption of reinsurance treaty not to be a precondition to assumption of
reinsurance policy and found that defendant had assumed and was liable on
reinsurance policy on individual's life.
Indiana D & L Building & Remodeling, Inc. v. Eakin, 546 N.E.2d 858 (Ind. App. 1989).
The trial court held that a general contractor did not have a right of direct
action against reinsurer following insolvency of subcontractor's surety, and
ordered that all reinsurance proceeds be paid to surety's liquidator. General
contractor appealed, on the ground that its contract permitted a direct action,
involving recovery and discharge. The Appellate Court held that state
insolvency statutes and policy prohibit a direct action, because inasmuch as
recovery and discharge exist together or not at all, the corresponding
discharge operates as an improper preference.
D & L Building & Remodeling, Inc. v. Eakin, 546 N.E.2d 858 (Ind. Ct. App.
1989). An insured company cannot maintain a direct right of action against
reinsurer of an insolvent insurer. Rather, all proceeds due to an insolvent
ceding insurer must be paid directly to the Liquidator, so that the
reinsurance proceeds can benefit all creditors to the estate.
State of Florida ex rel. O'Malley v. Department of Insurance of Indiana, 155 Ind.
App. 168, 291 N.E. 2d 907 (1973). The Florida ancillary receiver of an insolvent
insurer challenged the Indiana domiciliary liquidator's handling of a reinsurance
treaty, which ceded 42.5% of the insolvent insurers liability to the assuming
insurer, another Indiana insurer. Pursuant to an Indiana court order, the
assuming insurer was allowed to adjust and pay claims of the insolvent insurer,
with a right to reimbursement from other recoveries by the Indiana liquidator
for the insolvent insurers 57.5% share of the loss. The Florida ancillary receiver
was not entitled to any part of the reinsurance proceeds associated with
Florida risks since such proceeds are general assets of the liquidation estates.
The Florida ancillary receiver had no lawful interest and therefore lacked
standing to challenge the Indiana Court's approval of the reinsurer's proposal.
Iowa Globe Nat. Fire Ins. Co. v. American Bonding & Casualty Co., 217 N.W. 268, 205
Iowa 1085 (1928). A solvent insurer had purchased two policies from an
insurer, who became insolvent. Prior to insolvency, the insurer reinsured its
risk with four other insurers.
The Iowa Supreme Court held that the receivership did not terminate the
insurer's liability and that its two insurance policies were still valid although not
wholly collectible. However, the additional policies constituted co‐insurance
with the insolvent insurer's two policies so as to reduce the insolvent insurer's