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insurance commissioner entered into a contract with a solvent insurer
whereby the latter purchased the assets and business of the insolvent insurer,
and the agreement contained the provision that all payments of installment
disability benefits and monthly income disability benefits shall be reduced to a
sum equal to 50% thereof. The contract was mailed to the insured, with a letter
from the president of the insolvent insurer containing language that the
policies and benefits remained unchanged. When plaintiffs received only 50%
of the disability claim, this action was instituted alleging that the terms of the
letter should be interpreted to obligate the assuming insurer to pay stated
benefits in full. The court held that the letter signed by assuming insurer's
president could not be interpreted as requiring defendant to pay full amount
of disability benefit, especially where insured had been put on notice that the
policy was being assumed by another insurer subject to provisions of purchase
agreement.
Washington v. Merit Mutual Ins. Co., 5 Ill. App. 3d 742, 284 N.E.2d 304 (Ill. App.
1972). Plaintiff sought to recover under the uninsured motorists provisions of
plaintiff's auto policy as the insurer of the other motorist was placed in
liquidation. However, the court held that the order of liquidation by merely
ordering liquidation, did not constitute a denial of the policyholder's coverage.
Although, pro rata distribution of assets from the insurer may produce less
than full satisfaction of the claims cannot be deemed an absolute denial,
especially as of the date of liquidation order, since at that time the extent of
the recovery has not yet been determined.
Kentucky
Casteel v. Kentucky Home Life Ins. Co., 258 Ky. 304, 79 S.W.2d 941 (1935). The
court held that an adjudication of insolvency of an insurer cancels its
outstanding policies as a matter of law, and policyholder is entitled to share
with other creditors in the assets of the insolvent insurer. But where another
insurer purchases the assets of the insolvent insurer and assumes its
obligations, the insured has rights against the purchaser as granted in the sales
contract, if the insured accepts the contract. If not, the policyholder is entitled
to a portion of the reserve as a general rule.
Kentucky Home Life Ins. Co. v. Miller, 268 Ky. 271, 104 S.W.2d 997 (1937). The
court held that a policyholder of an insolvent life insurer is entitled to a
proportionate share in the reserve or cash value of the policy during the
policyholder's lifetime against the insolvent insurer's estate, if the policyholder
desires to proceed as a creditor rather than continuing such insurance
coverage with a successor company in the plan of reorganization.
Louisiana
Alerion Bank v. La. Ins. Guar. Ass’n, 753 So. 2d 369 (La. Ct. App. 2000). The
Louisiana Insurance Guaranty Association (“LIGA”) appealed a finding of
liability to the holder in due course (“Holder”) of certain financial guaranty
bonds issued by an insolvent insurer (“Issuer”). LIGA argued that Holder
manipulated the situation to force the borrowers to default on the bonds
within the thirty‐day grace period after Holder learned of the insolvency of
Issuer. LIGA submitted that, in the normal course of business, default would
not have occurred but for Holder’s interference because payment was not
yet due on the bonds and because the Issuer would have an additional thirty
days under the bonds to cure upon notice of default. LIGA argued, if
payment was not yet due because the time period for cure had not yet
expired, and without the interference of Holder to force default, then there
would have been no default on the bonds within the thirty‐day grace period.
The court of appeals rejected LIGA’s arguments reasoning that the
appropriate time for accrual of LIGA’s obligation is the time of the
occurrence that caused the loss – the insolvency of Issuer. Therefore, the
court held LIGA is legally obligated to pay Holder on its claim(s) submitted