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Georgia
Boyd v. Wright, 148 Ga. 216, 96 S.E. 388 (1918). The court held that claims of
policyholders of an insolvent life insurance company are in the nature of
damages for breach of contract, and that as a general rule these policyholders
all stand as creditors on an equal basis. Policyholders who are suing upon the
death of an insured are not entitled to any preference or priority out of the
assets of the insolvent company over living policyholders.
Oxendine v. Commissioner of Ins. of North Carolina, 229 Ga. App. 604, 494
S.E.2d 545 (1997). Under a plan of rehabilitation, rehabilitator agreed that
delinquent insurer would pay certain pre‐rehabilitation claims over several
years. The rehabilitation plan failed, and the insurer was placed into
liquidation. The claimants argued that these claims must be paid without
regard to priorities in liquidation or, in any event, that because of the postrehabilitation
settlement, these claims should be accorded an administrative
priority. The appellate court rejected both contentions, holding that all
claims are subject to prioritization in liquidation and that settlements by the
rehabilitator do not affect a debt’s priority in the event of a subsequent
liquidation.
Illinois
In re Liquidation of Reserve Insurance Company, 122 Ill. 2d 547 (1988). Claims
arising from reinsurance agreements with insolvent insurance companies are
not claims of "policyholders, beneficiaries [or] insureds ... under insurance
policies and insurance contract," and therefore, are not given policyholder
priority under Illinois Insurance Code §205(1)(c), but rather are treated as
general creditors under §205(1)(d).
In re Liquidation of Security Casualty Co., ___ Ill. 2d ___, 1989 Ill. Lexis 39
(March 29, 1989). Shareholders of liquidating insurance company could not
recover outside of the statutory distribution scheme funds paid in violation of
Federal securities law. Section 205 of the Illinois Insurance Code places
shareholders in the lowest priority for distribution and the imposition of a
constructive trust in favor of shareholders would undermine legislative
determination of priorities.
In re Liquidation of Security Casualty Co., 127 Ill.2d 434, 537 N.E.2d 775 (Ill.
1989). Under the Illinois Insurance Code a constructive trust cannot be
imposed for the benefit of defrauded shareholders. The Insurance Code
accords claims of shareholders the lowest priority and mandates that no
subordinate class of claimants may share in the distribution of assets until
the allowed claims of all senior interests have been satisfied in full. Since a
constructive trust for the benefit of the shareholder class would grant
shareholders super‐priority ahead of all other claimants in the liquidation
process, a trust would unjustly enrich shareholders in violation of the
Insurance Code.
Illinois
Reliance Ins. Co. v. Shriver, Inc., 38 F.Supp.2d 684 (N.D. Ill. 1999). Fronting
insurer sold insurance through in‐state insurer that, in turn, used agent to place
policies. When in‐state insurer cancelled the policy of an insured issued by agent
via in‐state insurer on a third party’s paper to issue a new policy on the fronting
insurer’s paper, in‐state insurer owed agent for unearned premiums and agent
owed in‐state insurer for premiums on the new policy. Agent then set‐off instate
insurer’s debt to it against its debt to in‐state insurer and credited the
returned premium to insured. When in‐state insurer became insolvent, fronting
insurer revoked its authorization to act on its behalf. Fronting insurer then filed
suit to invalidate agent’s set‐off, arguing agent improperly withheld the funds it
possessed in a fiduciary capacity under 215 Ill. Comp. Stat. 5/508.1. Agent argued
the set‐off was proper because it only owed a duty and debt to in‐state insurer
and the set‐off occurred before fronting insurer revoked in‐state insurer’s
authority. In absence of evidence of a fiduciary or contractual relationship with