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Governmental/Superpriority Claims
Supreme Court
United States v. Fabe, 508 U.S. 491 (1993). The United States Supreme Court
addressed the issue of whether the federal priority statute, 31 U.S.C. §3713,
which accorded first priority to the United States with respect to a bankrupt
debtor’s obligations, pre‐empted Ohio’s priority statute Ohio Rev. Code
§3903.42, which conferred only fifth priority to the United States in
proceedings to liquidate an insolvent insurance company. The Court
explained that generally a state statute that conflicts with a federal statute
would be pre‐empted, but that under the McCarran‐Ferguson Act, 15 U.S.C.
§1012, a state statute, if enacted for the purpose of regulating the business
of insurance, will not be pre‐empted by a conflicting federal statute, unless
that federal law specifically regulates the business of insurance. The Court
stated that McCarran‐Ferguson was intended to further Congress’ objective
of granting the States broad regulatory authority over the business of
insurance.
The District Court had granted the United States summary judgment relying
upon the three prong test set forth in Union Labor Life Ins. Co. v. Pireno, 458
U.S. 119 (1982). ((1) whether the practice has the effect of transferring or
spreading a policyholder’s risk; (2) whether the practice is an integral part of
the policy relationship between the insurer and the insured; and (3) whether
the practice is limited to entities within the insurance industry.) The Sixth
Circuit reversed.
The Supreme Court concluded that Pireno did not suggest that the business
of insurance was confined entirely to the writing of insurance contracts, as
opposed to their performance. The Court noted that cases such as Pireno
and Group Life & Health Ins. Co. v. Royal Drug Co., 440 U.S. 205 (1979) held
only that “ancillary activities” that did not affect the performance of the
insurance contract or enforcement of contractual obligations did not enjoy
exemption as laws regulating the “business of insurance”. The Court stated
that actual performance of an insurance contract did fall within the
“business of insurance”. The Court explained that the broad category of
laws enacted “for the purpose of regulating the business of insurance”
consisted of laws that possessed the “end, intention, or aim” of adjusting,
managing, or controlling the business of insurance.
The Court found that the Ohio priority statute was generally designed to
carry out the enforcement of insurance contracts by ensuring the payment
of policyholders’ claims despite the insurance company’s bankruptcy. The
Court held that to the extent that the Ohio priority statute protected
policyholders, it was a law enacted for the purpose of regulating the
business of insurance, but to the extent that it was designed to further the
interests of other creditors, it was not a law enacted for the purpose of
regulating the business of insurance. Thus, the Court concluded that Ohio
may afford priority over claims of the United States to the insurance claims
of policyholders and to the costs and expenses of administering the
liquidation, but other categories are not free from federal pre‐emption
under the McCarran‐Ferguson Act.
Assignment of Claims
Mississippi
Home Ins. Co. v. Miss. Ins. Guar. Ass’n, 904 So. 2d 95 (Miss. 2004). The primary
carrier of insured, an insolvent insurer, failed to settle a personal injury claim
within policy limits. The insolvent insurer then requested that the Mississippi