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un ten months and twenty‐six days at the time of the insolvency. Although the
policyholder had incurred no losses during this time, it argued that it had the
right to elect to rescind the insurance contract and recover the whole year's
premium. The court held that the policyholder did have a right to a return of
the unearned premium, but did not have any claim for the return of entire
premium because the insurer had partly performed the contract by incurring
risk on the policy for more than ten months. The final policy had run a full year
and had expired nine days before the insurance company was declared
insolvent. The policy required the policyholder to notify the insurer of any loss
within 10 days of the loss and to make a final proof of such loss within 30 days.
The policyholder at issue failed to make such final proof under the terms of the
contract. The court found that at the time of the breach of contract by the
insolvent insurer, the insured was not itself in default because the time to file a
final proof of loss did not expire until after the insurance company had been
declared insolvent. The court thus allowed the insured to recover on quantum
merit for breach of contract, the measure of damages being substantially the
same as if the policyholder had fully performed by furnishing the final proof of
loss before the insolvency.
Taylor v. North Star Mutual Ins. Co., 46 Minn. 198, 48 N.W. 772 (1891). The
court found that when losses have occurred after the adjudication of
insolvency, the only claim open to the policyholder is for breach of contract
and the measure of damages is the surrender value of the policy.
Vetter, et al. v. Security Continental Ins. Co., et al., 567 N.W. 2d 516, (Minn.
1997). Plaintiffs, residents of Minnesota, purchased group insurance
contracts from Security, a Delaware company, and later those contracts
were transferred to Inter‐American Illinois, a subsidiary of Security. The
Illinois company was subsequently declared insolvent and ordered into
liquidation by the Illinois Department of Insurance. The Plaintiffs later filed
suit seeking to enforce contractual rights against Security. The trial court
granted partial summary judgment holding Security liable under the original
contracts. The Court of Appeals reversed finding that under choice of law
rules, Illinois law rather than the laws of Minnesota should control. Under
Illinois law, the appellate court found that the facts supported the position
that a novation had occurred following the transfer of risk from Security to
Inter‐American Illinois. Consequently, Plaintiffs’ recourse was against the
insolvent estate of Inter‐American Illinois. Plaintiffs appealed and the
Minnesota Supreme Court reversed and reinstated the summary judgment in
their favor. The court determined that the standard of evidence for a
novation was the same under either Illinois or Minnesota law and that the
burden of proving a novation had not been met. Therefore, Security
remained liable on the contracts.
Mississippi Gregory v. Cent. Sec. Life Ins. Co., 953 So. 2d 233 (Miss. 2007). Plaintiffs
purchased life insurance policies with “vanishing” premiums from an agent of
an insurer which became insolvent and was placed in liquidation. A second
company (“Assuming Company”) entered an assumption reinsurance
agreement with the National Organization of Life and Health Insurance
Guaranty Associations, to perform certain contractual obligations of the insurer.
Thereafter, Assuming Company notified plaintiffs that they were required to
provide additional premiums on the life insurance policies purchased from
insurer. Plaintiffs filed suit against the agent and Assuming Company, as
successor in interest to the insurer, for making false and misleading statements
in a deliberate attempt to induce them to purchase the subject “vanishing”
premium policies. The plaintiffs argued that when Assuming Company assumed
the obligations of insurer under the policies, Assuming Company also assumed
responsibility for any false and misleading statements made by the insurer. The
Supreme Court of Mississippi held that Assuming Company was not liable to the