v. Shovelton

The summaries of the Colorado Court of Appeals published opinions
constitute no part of the opinion of the division but have been prepared by
the division for the convenience of the reader. The summaries may not be
cited or relied upon as they are not the official language of the division.
Any discrepancy between the language in the summary and in the opinion
should be resolved in favor of the language in the opinion.
SUMMARY
January 24, 2019
2019COA15
No. 18CA1772, Garrou v. Shovelton — Insurance — Regulation
of Insurance Companies — Uniform Insurers Liquidation Act —
Insurers’ Rehabilitation and Liquidation Act — Liability Risk
Retention Act of 1986
In this interlocutory appeal under C.A.R. 4.2, a division of the
court of appeals concludes, as a matter of first impression, that a
Colorado court must recognize and give effect to a South Carolina
liquidation order granting a stay of all proceedings involving a
South Carolina risk retention group when one of the group’s
policyholders is sued in Colorado, for two reasons. First, both
Colorado and South Carolina have adopted the Uniform Insurers
Liquidation Act (UILA), which contains a reciprocity provision
requiring states to recognize stays in insurance proceedings from
other states with the UILA. Second, the Federal Liability Risk
Retention Act of 1986 governs risk retention groups and gives a
charter state (here South Carolina) plenary authority to regulate the
risk retention group’s operations under the charter state’s UILA.
The division reverses the district court’s order denying the request
for a stay and remands the case with directions to stay the
proceedings as to defendant Lawrence Shovelton, consistent with
the South Carolina order.
COLORADO COURT OF APPEALS 2019COA15
Court of Appeals No. 18CA1772
Chaffee County District Court No. 16CV30040
Honorable Amanda Hunter, Judge
John L. Garrou and Denice Garrou,
Plaintiffs-Appellees,
v.
Lawrence A. Shovelton,
Defendant-Appellant.
ORDER REVERSED AND CASE
REMANDED WITH DIRECTIONS
Division A
Opinion by JUDGE FREYRE
Bernard, C.J., and Welling, J., concur
Announced January 24, 2019
Wm. Andrew Wills II, P.C., Wm. Andrew Wills II, Colorado Springs, Colorado,
for Plaintiffs-Appellees
Hershey Decker Drake, Kari M. Hershey, Matthew W. George, Lone Tree,
Colorado, for Defendant-Appellant
¶1 This is a C.A.R. 4.2 interlocutory appeal of a district court
order denying a motion to stay the proceedings. It arises from a
medical malpractice action brought by plaintiffs, John L. Garrou
and Denice Garrou, against defendant, Lawrence A. Shovelton, as
well as Monarch Anesthesia, LLC (Monarch), and Salida Hospital
District (hospital).1 Shovelton moved to stay the proceedings based
on a South Carolina state court order commencing liquidation
proceedings and granting an injunction and automatic stay of all
proceedings against his malpractice carrier, Oceanus Insurance
Company, and any of Oceanus’ policyholders (South Carolina
order). Oceanus is a risk retention insurance group, and Shovelton
is one of its policyholders. We granted Shovelton’s petition for
interlocutory review because the appealed order involves controlling
and unresolved questions of law, and our immediate review will
promote a more orderly disposition of this litigation.2
———————————————————————
1 Neither Monarch nor the hospital joined Shovelton’s C.A.R. 4.2
petition.
2 While the legal issue presented in the Rule 4.2 petition is
unrelated to the merits of the malpractice action, the division agrees
with Shovelton that proceeding to trial with the automatic stay in
place could result in a judgment that is void as a matter of law,
thereby requiring the parties to expend considerable additional
1
¶2 Resolution of the petition requires us to answer a novel
question: Must a Colorado court recognize and give effect to a South
Carolina court’s liquidation order concerning a South Carolina risk
retention insurance group and its policyholders when one of those
policyholders is sued in Colorado? Our answer is “yes,” for two
reasons. First, both South Carolina and Colorado have adopted the
Uniform Insurers Liquidation Act (UILA), §§ 10-3-501 to -559,
C.R.S. 2018; S.C. Code Ann. §§ 38-27-10 to -1000 (2018), which
contains a reciprocity provision requiring states to recognize stays
in insurance proceedings from other UILA states. Second, Oceanus
is a risk retention group that was chartered in South Carolina and
is governed by the Federal Liability Risk Retention Act of 1986
(LRRA), 15 U.S.C. §§ 3901-3906 (2018). The LRRA gives a risk
retention group’s charter state primary authority to regulate the
group’s operations under the UILA and to issue orders binding a
risk retention group and its policyholders in other states where the
———————————————————————
resources on a second trial. Cf. McGuire v. Champion Fence &
Constr., Inc., 104 P.3d 327, 329 (Colo. App. 2004) (finding that
actions against debtors in violation of a bankruptcy stay are void).
Therefore, granting the petition will promote a more orderly
disposition of the litigation. Triple Crown at Observatory Village
Ass’n v. Village Homes of Colo., Inc., 2013 COA 144, ¶¶ 14-15.
2
group conducts business. Accordingly, we conclude that Colorado
must recognize and give effect to South Carolina’s order and,
therefore, we reverse the district court’s order denying Shovelton’s
motion for a stay. We remand the case with directions to stay the
proceedings as to Shovelton, and for the district court to determine,
in its discretion, whether the Garrous may proceed against
Monarch and the hospital without Shovelton.
I. Relevant Facts and Procedural History
¶3 Mr. Garrou was admitted to a Colorado hospital for podiatric
surgery, during which Shovelton, a nurse anesthetist, administered
a popliteal3 nerve block. The Garrous allege that Shovelton
negligently administered the nerve block and caused Mr. Garrou to
suffer permanent injury to his right leg. Consequently, they filed
this medical malpractice suit in January 2017 against Shovelton,
Monarch, and the hospital asserting claims for negligence and loss
of consortium.
———————————————————————
3 Popliteal is “of or relating to the back part of the leg behind the
knee joint.” Merriam-Webster Dictionary, https://perma.cc/7XTD-
DK64.
3
¶4 Oceanus is Shovelton’s malpractice insurer and is a South
Carolina industrial insured captive corporation formed as a risk
retention group. It is owned by its policyholder group members
throughout the United States. In August 2017, the Director of the
State of South Carolina Department of Insurance filed a petition to
commence liquidation proceedings against Oceanus, alleging that
Oceanus had failed to maintain the required minimum capital and
surplus to cover its policyholders; that further business
transactions would be hazardous to Oceanus’ policyholders,
creditors, and the public; and that Oceanus was insolvent under
South Carolina law.
¶5 On September 21, 2017, a South Carolina court granted the
Director’s petition, appointed him as liquidator, and issued an order
commencing liquidation proceedings. The order imposed an
injunction and automatic stay of proceedings “applicable to all
persons and proceedings.” As relevant here, it prohibited (1) “[t]he
institution or further prosecution of any actions or proceedings”; (2)
“[t]he obtaining of preferences, judgments, attachments,
garnishments, or liens against the insurer, its assets, or its
policyholders”; (3) “[t]he levying of execution against its insurer, its
4
assets or its policyholders”; and (4) “[a]ny other threatened or
contemplated action that might lessen the value of the insurer’s
assets or prejudice the rights of policyholders, creditors, or
shareholders, or the administration of any proceeding under
Chapter 27 of Title 38 of the South Carolina code.” The order
further provided that “the rights and liabilities of the insurer and its
creditors, policyholders, shareholders, members, and other persons
interested in its estate become fixed as of the date of entry of the
order of liquidation.”
¶6 While the defendants’ motions for summary judgment were
pending, Shovelton received a letter from the liquidator dated
September 29, 2017, advising him that “all claim matters that you
have [with] Oceanus are now stayed.” Separately, the Garrous filed
a notice of the South Carolina order in October and requested a
stay consistent with the order. Monarch and the hospital opposed
the stay, arguing that the order was limited to the institution of new
proceedings following issuance of the order and that the Colorado
suit would not interfere with the out-of-state liquidation
proceedings. On November 21, 2017, a magistrate denied
5
defendants’ summary judgment motions and the Garrous’ request
for a stay. Neither side appealed the order denying the stay.
¶7 On February 8, 2018, the South Carolina court issued an
“Order of Clarification.” That order provides as follows:
It has been brought to the attention of the
Court that there is some confusion among the
Bench and Bar in other jurisdictions as to
whether the injunction and automatic stay set
forth in the Order which is “applicable to all
persons and proceedings” and which prohibits,
among other things, “the institution of further
prosecution of any actions or proceedings”
includes prohibiting actions against the
policyholders of Oceanus which would be the
insured physicians which are also referred to
as covered providers and additional named
insureds of Oceanus Insurance Company.
So as to clarify my Order of September 21,
2017, this Order is to confirm that the
automatic stay prohibiting “the institution of
further prosecutions of any action or
proceedings” includes prohibiting actions or
proceedings against the policyholders, covered
providers and additional named insureds of
Oceanus Insurance Company.
¶8 On May 3, 2018, Shovelton filed a motion to stay all
proceedings. He argued that Colorado must give full faith and
credit to the South Carolina order because both states have adopted
a version of the UILA and are bound by reciprocity under it. The
6
hospital joined the motion a few days later, and the Garrous filed a
motion opposing the stay. The Garrous argued that (1) the court
had already ruled on this issue in its November 21, 2017, order; (2)
no appeal had been taken from the magistrate’s order; (3) the
Colorado proceedings did not interfere with the Oceanus
liquidation; and (4) any delay would be unjust. The district court
denied Shovelton’s motion on July 23, 2018, finding that a stay is
not required because (1) if the South Carolina order applies to any
actions or proceedings against any policyholder, it would be
“dangerously broad”; (2) any judgment in Colorado would not affect
the assets of Oceanus, but instead would only affect Shovelton’s
ability to pay the costs of his defense and to receive assistance in
paying a claim; and (3) because South Carolina has no jurisdiction
over the Garrous, it cannot bind them. Shovelton then moved for
C.A.R. 4.2 certification of the court’s order denying his motion for
stay, and both the district court and this division granted his
petition.
II. Colorado Must Recognize South Carolina’s Liquidation Order
¶9 Shovelton contends that the district court erroneously denied
his motion for stay because Colorado and South Carolina are
7
reciprocal states under the UILA, and, thus, Colorado must give full
faith and credit to any injunction order in a liquidation proceeding.
We agree, but for slightly different reasons. Because Colorado and
South Carolina are reciprocal states under the UILA, the statutory
language requires Colorado to recognize South Carolina’s order.
Moreover, the LRRA, which governs risk retention groups, further
requires Colorado to honor the South Carolina order.4 Therefore,
we need not decide the constitutional issue. See Denver Publ’g Co.
v. Bd. of Cty. Comm’rs, 121 P.3d 190, 194 (Colo. 2005) (“[I]t is our
obligation and crucial to our exercise of judicial authority that we
do not resolve constitutional questions or make determinations
regarding the extent of constitutional rights unless such a
———————————————————————
4 Shovelton cites two New York cases holding that the South
Carolina order should be honored under the doctrine of comity.
Rojas v. Travers Concannon, No. 805249/2016, 2018 WL 1508861(N.Y. Sup. Ct. N.Y. Cty. Mar. 27, 2018); Leon v. Waldman, No.
805271/2014, 2018 WL 1448077 (N.Y. Sup. Ct. N.Y. Cty. Mar. 23,
2018). The Garrous cite to a different New York case holding the
opposite under the doctrine of comity. Hala v. Orange Reg’l Med.
Ctr., No. 3221/2014, 2018 WL 2013018 (N.Y. Sup. Ct. Orange Cty.
Apr. 23, 2018). Although we agree with the conclusions in Rojas
and Leon, we are not bound by their decisions. Wal-Mart Stores,
Inc. v. United Food & Commercial Workers Int’l Union, 2016 COA 72,
¶ 17. Moreover, because we decide this case on statutory grounds,
we need not address the doctrine of comity.
8
determination is essential and the necessity for such a decision is
clear and inescapable.”).
A. Standard of Review and Applicable Law
¶ 10 Although a district court’s decision to grant or deny an
injunction generally lies within the sound discretion of the court,
where, as here, the issue concerns only legal questions and the
facts are not disputed, we review the decision de novo. Evans v.
Romer, 854 P.2d 1270, 1289 (Colo. 1993). Similarly, we interpret
statutes de novo. Miller v. Hancock, 2017 COA 141, ¶ 24. In doing
so, we give words and phrases their plain and ordinary meanings.
Id. “If a statute is clear and unambiguous on its face, then we need
not look beyond the plain language, and ‘we must apply the statute
as written.’” Vigil v. Franklin, 103 P.3d 322, 327 (Colo. 2004)
(citations omitted).
1. The Uniform Insurers Liquidation Act
¶ 11 The UILA was drafted by the National Conference of
Commissioners on Uniform State Laws and the American Bar
Association to eliminate difficulties that had arisen during the
liquidation, rehabilitation, and reorganization of insurance
companies that operated in multiple states. See Herstam v. Bd. of
9
Dirs., 895 P.2d 1131, 1134-35 (Colo. App. 1995) (citing UILA, 13
U.L.A. 322-23 prefatory note (1986)). The UILA provides “reciprocal
provisions that could be adopted by each state” to “provide a
uniform, orderly, and equitable method of making and processing
claims against financially troubled insurers and to provide for fair
procedures for rehabilitating the business of such insurers and, if
necessary, for distributing their assets.” Id. at 1135.
¶ 12 Colorado adopted the UILA in 1955 and repealed and
reenacted it in 1992, adding, relocating, and eliminating certain
sections as the Insurers’ Rehabilitation and Liquidation Act
(Colorado IRLA). See id. The Colorado IRLA defines a reciprocal
state as
any state other than this state in which, in
substance and effect, sections 10-3-517(1), 10-
3-551, 10-3-552, 10-3-554, 10-3-555, and 10-
3-556 are in force, and in which provisions are
in force requiring that the commissioner or
equivalent official be the receiver of a
delinquent insurer, and in which some
provision exists for the avoidance of fraudulent
conveyances and preferential transfers.
§ 10-3-502(15), C.R.S. 2018.
¶ 13 South Carolina has adopted its own version of the UILA, the
South Carolina Insurers Rehabilitation and Liquidation Act
10
(SCIRLA). S.C. Code Ann. §§ 38-27-10 to -1000 (2018). Both the
Colorado IRLA and the SCIRLA provide that on motion from a
receiver, a court may grant restraining orders, preliminary and
permanent injunctions, and other orders as necessary. See § 10-3-
505, C.R.S. 2018; S.C. Code Ann. § 38-27-70 (2018).5 As well, the
SCIRLA defines reciprocity the same as the Colorado IRLA, except
that it refers to an insurance “director” rather than an insurance
“commissioner.” S.C. Code. Ann. § 38-27-50(17) (2018).
2. Federal Liability Risk Retention Act of 1986
¶ 14 Unlike a traditional insurance company, a risk retention group
is owned and operated by its members — the insureds — and is
———————————————————————
5 Compare § 10-3-517(1), C.R.S. 2018 (liquidation orders), and § 10-
3-551, C.R.S. 2018 (domiciliary liquidators in other states), and
§ 10-3-552, C.R.S. 2018 (ancillary formal proceedings), and § 10-3-
554, C.R.S. 2018 (claims of nonresidents against insurers domiciled
in the state), and § 10-3-555, C.R.S. 2018 (claims of residents
against insurers domiciled in reciprocal states), and § 10-3-556,
C.R.S. 2018 (attachment, garnishment, and levy of execution), with
S.C. Code Ann. § 38-27-370 (2018) (liquidation orders), and S.C.
Code Ann. § 38-27-930 (2018) (domiciliary liquidators in other
states), and S.C. Code Ann. § 38-27-940 (2018) (ancillary formal
proceedings), and S.C. Code Ann. § 38-27-960 (2018) (claims of
nonresidents against insurers domiciled in the state), and S.C.
Code Ann. § 38-27-970 (2018) (claims of residents against insurers
domiciled in reciprocal states), and S.C. Code Ann. § 38-27-980(2018) (attachment, garnishment, and levy of execution).
11
governed by the LRRA, 15 U.S.C. §§ 3901-3906 (2018). The LRRA
defines a “risk retention group” as “any corporation or other limited
liability association . . . which . . . is chartered or licensed as a
liability insurance company under the laws of a State and
authorized to engage in the business of insurance under the laws of
such State” and “has as its owners only persons who comprise the
membership of the risk retention group and who are provided
insurance by such group.” 15 U.S.C. § 3901(a)(4)(C)(i), (a)(4)(E)(i).
Risk retention groups are formed “for the purpose of self-insuring”
and are made up of “persons or businesses with similar or related
liability exposure.” Wadsworth v. Allied Prof’ls Ins. Co., 748 F.3d
100, 102-03 (2d Cir. 2014). Congress enacted the LRRA “to
decrease insurance rates and increase the availability of coverage
by promoting greater competition within the insurance industry.”
Preferred Physicians Mut. Risk Retention Grp. v. Pataki, 85 F.3d 913,
914 (2d Cir. 1996).
¶ 15 Risk retention groups are “subject to a tripartite scheme of
concurrent federal and state regulation.” Wadsworth, 748 F.3d at
103. First, the LRRA preempts state laws that “make unlawful, or
regulate, directly or indirectly, the operation of a risk retention
12
group.” 15 U.S.C. § 3902(a)(1) (2018). Second, it exempts from
preemption the domiciliary or charter state, which it vests with
plenary authority to “regulate the formation and operation” of risk
retention groups. 15 U.S.C. § 3902(a)(1). “Federal preemption,
therefore, functions not in aid of a comprehensive federal regulatory
scheme, but rather to allow a risk retention group to be regulated by
the state in which it is chartered, and to preempt most ordinary
forms of regulation by the other states in which it operates.”
Wadsworth, 748 F.3d at 103 (emphasis added). Indeed, consistent
with the LRRA, the Colorado IRLA is intended to “protect the
interests of insureds,” and to lessen “the problems of interstate
rehabilitation and liquidation of insurers by facilitating cooperation
between states in the liquidation process and by extending the
scope of personal jurisdiction over debtors of insurers outside
[Colorado].” § 10-3-501(3), C.R.S. 2018.
¶ 16 Third, the LRRA vests some authority over risk retention
groups in nondomiciliary states. For instance, the LRRA permits
nondomiciliary states to (1) require a risk retention group’s
registration with the state commissioner for service of process
purposes, 15 U.S.C. § 3902(a)(1)(D); (2) require a risk retention
13
group to submit to an examination by the state commissioner to
determine the group’s financial condition, 15 U.S.C. § 3902(a)(1)(E);
and (3) investigate and initiate liquidation proceedings against a
risk retention group that does business in the nondomiciliary state
when the charter state declines to do so, 15 U.S.C.
§ 3902(a)(1)(E)(i)-(ii), (F)(i). But overall, the LRRA sharply limits a
nondomiciliary state’s secondary regulatory authority over risk
retention groups, as compared to the “near plenary authority it
reserves to the charter[] state.” Wadsworth, 748 F.3d at 103-04.
B. Application
¶ 17 We begin by rejecting the Garrous’ contention that the
reciprocity provision of the Colorado IRLA does not apply to a risk
retention group — only to traditional insurers. While we agree that
Oceanus is a risk retention group, the parties do not dispute that
Oceanus provides liability insurance to its policyholders and, thus,
is in the insurance business. And persons subject to the Colorado
IRLA include “[a]ll insurers who are doing, or have done, an
insurance business in this state,” “[a]ll insurers who purport to do
an insurance business in this state,” and “[a]ll insurers who have
insureds resident in this state.” § 10-3-503(1)(a), (b), (c), C.R.S.
14
2018. Therefore, we discern no meaningful distinction between a
risk retention group and a traditional insurer under the Colorado
IRLA.
¶ 18 We next consider and reject the Garrous’ contention that
Colorado and South Carolina are not “reciprocal states” that require
each to recognize and give effect to the other’s orders. As noted
above, both Colorado and South Carolina have adopted versions of
the UILA with substantively similar provisions that authorize the
insurance commissioner (or in South Carolina the insurance
director) to be the receiver of a delinquent insurer, and to seek
restraining orders, preliminary and permanent injunctions, and
other orders as necessary. We conclude from the plain language of
both states’ UILA statutes that Colorado and South Carolina are
indeed reciprocal states. See Herstam, 895 P.2d at 1136(concluding that because the Colorado and Arizona statutes are
“substantially similar” they meet the definition of reciprocal states).
And reciprocal states under the UILA must recognize and give effect
to a domiciliary state’s order. Id.; see § 10-3-505 (allowing a
receiver to apply for an injunction and stay for proceedings under
the UILA); S.C. Code Ann. § 38-27-70 (same); see also § 10-3-556,
15
C.R.S. 2018 (stating that during the pendency of a liquidation
proceeding “in this or any other state,” no action “shall be
commenced or maintained in this state against the delinquent
insurer or its assets”); S.C. Code Ann. § 38-27-980 (2018) (same).
¶ 19 Next, we are not persuaded by the Garrous’ contention that
the LRRA somehow limits South Carolina’s authority to regulate
and enjoin Oceanus. We instead conclude the opposite is true ―
that the LRRA strengthens South Carolina’s authority over Oceanus
and its policyholders. Recall, Congress enacted the LRRA to give a
charter state more control over risk retention groups and to limit
noncharter states from infringing on that authority. 15 U.S.C.
§ 3902(a)(1) (exempting risk retention groups from state law that
would “make unlawful, or regulate, directly or indirectly, the
operation” but excepting “the jurisdiction in which it is chartered”);
Wadsworth, 748 F.3d at 106. Thus, contrary to the Garrous’
argument, the LRRA limits Colorado’s authority, as a noncharter
state, to interfere with South Carolina’s control over Oceanus. See
Wadsworth, 748 F.3d at 106 (concluding that applying New York
law that interferes with the operation or regulation of an Arizona
risk retention group is not authorized under the LRRA); see also
16
Fla. Dep’t of Ins. v. Nat’l Amusement Purchasing Grp., Inc., 905 F.2d
361, 363 (11th Cir. 1990) (“Chartered in the group’s state of
domicile, the risk retention group is regulated primarily by the
domiciliary state. The authority of non-domiciliary states to license
and regulate risk retention groups is largely preempted.”).
¶ 20 Indeed, if a noncharter state like Colorado could ignore the
South Carolina injunction and stay of litigation involving a South
Carolina risk retention group’s policyholder, it would “make it
difficult for risk retention groups to form or to operate on a multi-
state basis,” which is precisely what Congress sought to avoid when
it enacted the LRRA. Wadsworth, 748 F.3d at 107 (citing Preferred
Physicians, 85 F.3d at 915-16). As the charter state, South
Carolina has the legal authority to regulate the liquidation
proceeding, and allowing suits against policyholders in noncharter
states, contrary to the South Carolina order, impairs that
regulation. In our view, the statutory scheme requires that
Colorado respect the power of South Carolina to regulate and
control Oceanus’ liquidation.
¶ 21 Additionally, the LRRA specifically incorporates the insurance
laws of the risk retention group’s charter state. First, it defines a
17
risk retention group as an insurance company that is chartered or
licensed “under the laws of a State.” 15 U.S.C. § 3901(a)(4). Next,
it defines “insurance” as “primary insurance, excess insurance,
reinsurance, surplus lines insurance, and any other arrangement
for shifting and distributing risk which is determined to be
insurance under applicable State or Federal law.” 15 U.S.C.
§ 3901(a)(1) (emphasis added). Finally, it also requires a risk
retention group to “submit . . . to the insurance commissioner of
the State in which it is chartered.” 15 U.S.C. § 3902(d)(1).
Therefore, the LRRA strengthens rather than diminishes the
SCIRLA’s and South Carolina’s authority over Oceanus and its
policyholders.
¶ 22 We are not persuaded that Colorado’s or South Carolina’s
failure to specifically define a risk retention group in their respective
UILAs somehow creates a conflict with the LRRA. Notably, neither
state’s statutes exempt risk retention groups, and the parties agree
that a risk retention group is an insurer. Because the LRRA
specifically incorporates a charter state’s “insurance laws,” we
discern no conflict. Instead, we view the LRRA and the UILA as
working in harmony — where the provisions conflict, the LRRA
18
controls, but where the LRRA specifically incorporates insurance
laws of the charter state that are compatible with its provisions or
purposes, they are not mutually exclusive. Thus, the LRRA simply
strengthens the requirement that Colorado recognize and give effect
to South Carolina’s order because South Carolina retains exclusive
control over Oceanus under the LRRA through the SCIRLA.
¶ 23 Next, while the Garrous are correct that the South Carolina
court does not have jurisdiction over them, no one disputes that
South Carolina has jurisdiction over Shovelton, who is a
policyholder in a South Carolina-chartered risk retention group and
a party to this action. The SCIRLA allows South Carolina courts to
issue injunctions “necessary and proper to prevent . . . the
obtaining of preferences, judgments, attachments, garnishments, or
liens against the insurer, its assets, or its policyholders.” S.C. Code
Ann. § 38-27-70(A)(1)(g). And the LRRA requires a risk retention
group to “comply with an injunction issued by a court of competent
jurisdiction, upon a petition by the State insurance commissioner
alleging that the group is in hazardous financial condition or is
financially impaired.” 15 U.S.C. § 3902(a)(1)(H). The Garrous have
cited no authority, nor have we found any, that precludes a charter
19
state from binding its risk retention group’s policyholders. In fact,
binding policyholders is logically necessary to prevent numerous
judgments against a risk retention group, and nothing in the LRRA
can “affect the authority of any Federal or State court to enjoin . . .
[the] operation of, a risk retention group that is in hazardous
financial condition or is financially impaired.” 15 U.S.C.
§ 3902(e)(2). Moreover, enjoining suits involving policyholders on a
nationwide basis is precisely what the South Carolina court
intended, as it made clear in its clarification order.
¶ 24 Finally, we are not persuaded that Smigielski v. Brookwood
School, Inc., No. 02-209, 2003 WL 1906786 (Mass. Sup. Ct. Apr. 16,
2003), or Mahan v. Gunther, 663 N.E.2d 1139 (Ill. App. Ct. 1996),
require a different result. Neither case involved a risk retention
group like Oceanus, so neither case discussed the applicability of
the LRRA. Further, neither the Massachusetts nor the Illinois case
involved reciprocity under the UILA.6
———————————————————————
6 For the same reasons, we find Gladd v. Landmark Logistics, Inc.,
No. CIV-16-894-D, 2016 WL 6407436 (W.D. Okla. Oct. 28, 2016),
the case on which the district court relied, inapposite.
20
¶ 25 In sum, we conclude that South Carolina has jurisdiction over
Oceanus and Oceanus’ policyholders, including Shovelton.
Herstam, 895 P.2d at 1136. Because South Carolina and Colorado
are reciprocal states under their respective UILAs, and because
South Carolina is the charter state under the LRRA, we conclude
that Colorado must recognize and give effect to the South Carolina
order and that the district court erred in denying Shovelton’s
motion for stay. However, because nothing in the record shows that
Monarch or the hospital is insured by Oceanus, the proceedings as
to them are not directly affected by the stay as to Shovelton. On
remand, the district court must enter a stay as to Shovelton. It
must also exercise its discretion to determine whether Shovelton is
an indispensable party to the litigation and whether staying the
entire case to avoid piecemeal litigation may be required. See
President’s Co. v. Whistle, 812 P.2d 1194, 1196 (Colo. App. 1991)
(explaining that the trial court has discretion to determine whether
to stay the entire proceeding or only part of the proceeding); see
also Dawn v. Mecom, 520 F. Supp. 1194, 1197 (D. Colo. 1981)
(noting the desirability of avoiding piecemeal litigation when one
21
action seeks resolution of the entire controversy and the other seeks
limited relief).
¶ 26 In reaching our conclusion, we are mindful of the Garrous’
claim that an indefinite stay would be unjust and note that once the
stay is in place, they may seek relief from the stay in South
Carolina. Indeed, the record shows that the South Carolina court
has previously granted relief from the stay to parties in a North
Carolina medical malpractice proceeding.7
III. Conclusion
¶ 27 The order is reversed, and the case is remanded for the district
court to stay proceedings as to Shovelton, consistent with the South
Carolina order, and to enter any further orders that it deems
necessary and appropriate as to the remaining parties.
CHIEF JUDGE BERNARD and JUDGE WELLING concur.
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7 South Carolina’s Court of Common Pleas for the Fifth Judicial
Circuit ultimately vacated the order lifting the stay after the parties
settled with the liquidator.
22