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within the insurance statutes. Creditors under reinsurance contracts shall be
general creditors under the statutory priority scheme for an insurance
company in rehabilitation and therefore have a lower priority than
policyholders.
Sizemore v. United Physicians Ins. Risk Retention Group, 56 S.W.3d 557, 2001
Tenn. App. LEXIS 242 (Tenn. Ct. App. 2001). Where there was no excusable
neglect in failure to timely file a proof of claim form, the court found that the
insured was an unexcused late filer under Tennessee Code § 56‐9‐326(b) and
was at best a Class 7 claim in the liquidation proceeding. Class 7 has priority only
over claims of the defunct company’s shareholders and other capital
contributors. Had the insured filed a timely proof of claim or had the claim been
allowed, the insured would have been a Class 2 claimant whose claim would
have had priority over all the other clams save administration expenses.
Texas
Empire Life & Hospital Ins. Co. v. Harris, 95 S.W. 2d 904 (Tex. Civ. App. 1980). A
creditor of an insolvent insurer sued the receiver for discontinuing payments
under a debenture given by the insolvent insurer. The debenture was provided
as consideration for the assumption of certain policies from the creditor. The
receiver terminated payments when the company was placed in receivership.
There was no segregated fund established in order to pay off the debenture.
The court determined that the debenture was subordinate to the rights of the
claimants under the insurance code, which requires that insurance companies
maintain free and unencumbered assets in an amount equal to their reserve
liabilities. Insurers are restricted in their ability to pledge or hypothecate these
assets. Claimants under the code are given a prior and preferential claim to all
assets of the insurer that have not been pledged hypothecated or
encumbered. The code was passed after the date that the debenture was
executed. The court found that the statute did not impair the creditors' right
to contract, and found the debenture as subordinated to the rights of
policyholders.
Vermont In re Ambassador Ins. Co., Inc., No. 2007‐232, 2008 WL 3490600 (Vt. Aug. 14,
2008). Assignment of liability insurance claims did not change their priority
status from priority four to priority five under the Vermont statute and, being
post‐loss, the assignment was not affected by a consent to assignment clause in
the policy. Assignment of the claims to a third‐party in exchange for payment
did not fundamentally change the insurer‐insured relationship because the
insured continued to manage and be liable for claims. Claims by an insured are
classified as priority four under Vermont priority statute; although the statute
does not specifically list assignees of policyholders under fourth priority,
common law generally presumes that an assignee takes whatever interest the
assignor possessed, and the priority four classification did not conflict with the
statute.
Virginia Swiss Re Life Company America v. Gross, 253 Va. 139, 479 S.E.2d 857 (1997).
Protective Life Insurance Company (“Protective”), Fidelity Bankers Life
Insurance Company (“Fidelity”), and North American Reassurance Company,
now known as Swiss Re Life Company of America (“Swiss Re”), entered into
reciprocal treaties of reinsurance. Swiss Re agreed to indemnify Protective
for any payments above levels established in schedules and interest for the
policies acquired from Fidelity and Fidelity agreed to indemnify Swiss Re for
the payments. Fidelity went into receivership and the Commissioner of
Insurance was appointed deputy receiver.
Swiss Re made payments to Protective and filed a claim with the deputy
receiver seeking administrative priority for the sum due it under the
reciprocal treaty as an administrative expense under Va. Code § 38.2‐1509