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a third party, mutual debts, or debt from each party to the other that arise at
the same time, between an insurance company and another person prior to the
insurance company’s liquidation must be set‐off under 215 Ill. Comp. Stat. 5/206.
Indiana Foremost Life Ins. Co. v. Indiana Department of Insurance, 274 Ind. 181, 409
N.E. 2d 1092 (1980). The plaintiff insurer was reinsured by an insolvent Indiana
company. The solvent insurer alleged that it had a preferred status over
general creditors under the priority of distribution statute of the Indiana
insurance code. The Indiana statute recognized as a class 3 priority those
claims of policyholders and insureds, and class 4 was limited to general
creditors. The insurer argued that it should fit between the class 3 and class 4
priorities. That is, after all policyholders' claims were paid, it would be paid
next with general creditors' claims being paid thereafter (pro rata). The
Indiana Supreme Court rejected this position. The enactment of a statutory
priority system eliminated the old rule that policyholders, insureds, re‐insureds,
and general creditors, were all accorded the same priority of distribution. In
examining the new Indiana priority provision, the Indiana Supreme Court
found it was clearly the intention of the legislature to protect the ordinary
insurance consumer. The failure to include reinsureds in the class 3 listing
showed the legislature's intent to exclude reinsurance from class 3.
Iowa
Maryland
State ex rel. Hager v. Iowa National Mutual Ins. Co., 430 N.W.2d 420 (Iowa
1988). Several officers of an insolvent mutual insurance company in liquidation
filed claims seeking recovery of their deferred compensation benefits as Class
3 claims under the liquidation provisions of the Iowa Code which are patterned
after the NAIC Model Act. In denying the claims, the Supreme Court of Iowa
found that the third‐priority status "is aimed at the insolvent insurance
company's obligation to its insureds and not to employee claims." 430 N.W.2d
at 422. The Court also found that the officers of the Company were prohibited
from invoking a second‐priority (claims of employees) status. The Court
concluded that the officers' deferred compensation benefits were Class 4,
general creditor claims.
Md. Ins. Guar. Assn. v. Muhl, 66 Md. App. 359, 504 A.2d 637 (1986). State
guaranty fund was not barred from making reimbursement claims against the
insolvent insurer after the date specified in a court order as "the last date" for
filing claims. Thus, the guaranty fund was entitled to retain its statutory
preferred creditor status with regard to the assets of the insolvent insurer.
Massachusetts Commissioner of Insurance v. Massachusetts Accident Co., 318 Mass. 238, 61
N.E.2d 137 (1945). The court held that when the receiver paid in full other
claims filed but not disputed up until the date of the liquidation order, disputed
claims filed before the order which were ultimately reduced to judgment were
entitled to payment in full insofar as they were the same type of claims which
the receiver had been paying in full. The court also held that a disabled
policyholder has no priority over a nondisabled policyholder or over an
ordinary creditor.
In re: The Liquidation of American Mut’l Liab. Ins. Co., 434 Mass. 272 (2001). In
connection with the approval of a liquidation plan, the Court held that a statute
giving preference to workers compensation claims over other policyholder
claims, which was enacted after the entry of the liquidation order, did not
violate other policyholders’ due process rights, but was simply the priority
scheme chosen by the Legislature.
Michigan
Fletcher v. State Treasurer, 16 Mich. App. 87, 167 N.W.2d 594 (1969). Since
trust deposit of securities made by a domestic casualty insurer was not made
for benefit of limited class of persons, and was general asset for benefit of all