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agreements with Legion Insurance Company (“Legion”) whereby Legion would
assume all obligations that AR and MS each owed their respective policyholders.
AR and MS each also transferred to Legion all outstanding net loss and
voluntary unearned premium reserves. At the same time, General Reinsurance
Corporation (“Gen Re”) and American Reinsurance Company (“Am Re”)
transferred to Legion by assignment agreement all obligations that they each
owed AR and MS. The result of the assignment and assumption agreements
were that, as of January 1, 2001, Legion had sole responsibility to the
policyholders and claimants of AR and MS under the policies at issue. Later,
Legion entered rehabilitation and the Mississippi Insurance Guaranty
Association (“MIGA”) acted to protect the interests of Mississippi policyholders
and claimants of Legion. MIGA refused to pay claims made to Legion based on
the underlying policies originally issued by AR and MS that were assumed by
Legion. MIGA reasoned that the assumed polices were not “covered claims
under direct insurance” that MIGA was required to pay under the relevant
statute. The Supreme Court of Mississippi held that the claims were covered
claims under direct insurance because the assumption by Legion of the policies
and obligations from MS and AR accomplished a novation. As such, the debt to
the policyholders of the two companies remained the same – direct insurance
policyholder liabilities – but Legion was substituted for AR and MS. The court
also determined that, to the extent they are unable to seek recovery in their
home states, MIGA would be liable for claims to Legion made by nonresidents
whose policyholders were located in Mississippi at the time of the insured
event.
Missouri
Ainsworth v. Allstate Ins. Co., No. 85‐1209‐CV‐W‐6 (S.D. Mo. Dec. 2, 1985). The
domiciliary liquidator initiated litigation to collect reinsurance proceeds, but
the court held that the reinsurer was entitled to a stay of the litigation, pending
the outcome of arbitration, which was required under its reinsurance contract.
First Am. Ins. Co. v. Commonwealth General Insurance Co. 954 S.W. 2d 460
(Mo. App. 1997). This case centers on the competing claims of the Receiver
for Commonwealth General Insurance Company and First American
Insurance Company for reinsurance proceeds. While it was solvent,
Commonwealth wrote insurance for Williams Trucking. Williams Trucking
was a Georgia based company that operated through the south, including
parts of Texas. Commonwealth was not authorized to issue policies in
Texas, so it entered into a fronting agreement with First American for the
Texas business. Commonwealth agreed to indemnify First American for any
loss resulting from the Texas policies and added First American as a named
insured under two reinsurance treaties.
First American filed a declaratory judgment action against the reinsurer. The
reinsurer was faced with conflicting claims and filed an interpleader action.
The trial court consolidated the declaratory judgment and interpleader
actions and granted summary judgment in favor of the receiver holding that
the reinsurance proceeds were assets of the Commonwealth estate.
The Court of Appeals reversed the decision holding (1) ceding insurer
accepted policy modification by retaining and not objecting to cover notes
adding second insurer as named insured under reinsurance treaties; (2)
insolvency clause, converting policy into one of liability and requiring
payment of reinsurance proceeds to insolvent insurer’s estate, did not come
into play so as to entitle receiver to proceeds, in light of separate, continuing
obligation owed to second insurer to indemnify it for loss resulting from
settlement of insured’s claim; (3) receiver did not have power under statutes
to disaffirm insolvent insurer’s acceptance of policy modification adding
second insurer as named reinsured.