Download PDF - Goodmans

creditor had secured a court judgment which had not yet been executed
against the property.
New Jersey
Central Penn National Bank v. New Jersey Fidelity & Plate Glass Ins. Co., 119 N.J.
Eq. 265, 182 A. 262 (1936). When general creditors of an insurance company
and judgment creditors sued to set aside a transfer by an insolvent insurance
company as a fraudulent conveyance, they were not entitled to a preference
over other creditors as to assets recovered. Even when a debtor's estate has
not been taken into legal custody, a creditor cannot exercise for the creditor's
sole benefit rights which exist for the equal benefit of creditors as a class.
Central Penn National Bank v. New Jersey Fidelity & Plate Glass Ins. Co., 117 N.J.
Eq. S48, 177 A. 441 (1935). An insurance company does not hold unearned
premiums in trust for the purpose of effecting reinsurance. To rule otherwise
would permit preferential treatment of policyholders over creditors of an
insolvent insurer's estate. Upon the insolvency of an insurer, its assets become
trust funds for the benefit of all creditors and an intentional reduction of them
is a fraud upon the trust.
Matter of the Liquidation of Integrity Ins. Co., 251 N.J. Super. 501 (Ch. Div. 1991).
Surety bonds are "insurance policies and insurance contracts" within the
meaning of the New Jersey Insurers Liquidation Act at N.J.S.A. 17:30C‐1 et seq.
Thus, holders of surety bonds were entitled to a higher priority (4th priority) in
the distribution of assets of Integrity, an insolvent insurer in liquidation, than
that afforded to holders of "all other claims" (5th priority) under the priority
distribution provision at N.J.S.A. 17:30C‐26.
New York Curiale v. United States, 216 A.D. 2d 48, 627 N.Y.S. 2d 655 (1 st Dept. 1995).
The court interpreted Department of Treasury v. Fabe (508 U.S. 491, 113 S.
Ct. 2202, 124 L. Ed . 2d 449) and New York Insurance Law Article 74
(Rehabilitation and Liquidation of Insurers)to give administrative costs and
expenses of a property/casualty insurer priority over claims by the Internal
Revenue Service (IRS). The court ruled that the IRS claims have priority over
all other claims except policyholder claims, with which the IRS claim shall
have equal priority. The Court stated, however, that if the insolvent were a
life insurance company, the IRS would, under New York law, have a lower
priority than policyholders.
1933 Op. N.Y. Att'y Gen. 552. All monies deposited in domestic banks by the
insurance commissioner, when acting as liquidator of an insurer, are entitled to
priority of payment on an equal footing with any other priority given by the
banking law of this state. Although monies deposited in national banks are also
granted the same priority by the language of the insurance code, no such
priority may be given to such deposits since Davis v. Elmira Savings Bank, 161
U.S. 275, holds that there can be no preference in the distribution of funds of
an insolvent national bank except as provided for by the National Banking Act.
In re Lawyers Title & Mortgage Co., (Mortgage N. 424421), 266 A.D. 322, 42
N.Y.S.2d 177 (1943), appeal denied, 268 A.D. 773, 50 N.Y.S.2d 172, appeal
dismissed, 293 N.Y. 655, 56 N.E.2d 293. The court held that guaranteed
mortgage participation certificates sold to the general public by a mortgage
company were entitled to priority as against pledged certificates upon the
liquidation of the mortgage company, since the bank's rights at the time of the
liquidation order were the same as those of the company.
In re New York Title & Mortgage Co., 163 Misc. 454, 297 N.Y.S. 524 (1937). Trust
claims are not entitled to preference in insolvency proceedings merely because
of their trust nature and without tracing the trust funds into remaining assets.
Trust funds are only deemed to have been traced, and a preference allowed,