In the Matter of the Liquidation of The Home Insurance Company

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THE SUPREME COURT OF NEW HAMPSHIRE
___________________________
Merrimack
No. 2021-0211
IN THE MATTER OF THE LIQUIDATION OF THE HOME INSURANCE
COMPANY
Argued: February 10, 2022
Opinion Issued: August 12, 2022
McLane Middleton, Professional Association, of Manchester (Mark C.
Rouvalis and Viggo C. Fish on the brief), and Freeborn & Peters LLP, of
Chicago, Illinois (Joseph T. McCullough IV and Peter B. Steffen on the brief,
and Peter B. Steffen orally), for the appellant.
John M. Formella, attorney general (J. Christopher Marshall on the
brief), and Rackemann, Sawyer & Brewster P.C., of Boston, Massachusetts (J.
David Leslie, Eric A. Smith, and Margaret C. Fitzgerald on the brief, and J.
David Leslie orally), for appellee Insurance Commissioner of the State of New
Hampshire, as Liquidator of the Home Insurance Company.
Kazmarek Mowrey Cloud Laseter LLP, of Pittsburgh, Pennsylvania (Paul
K. Stockman on the brief and orally), and Wadleigh, Starr & Peters, P.L.L.C., of
Manchester (Michael J. Tierney on the brief), for appellees Bridgestone
Americas Tire Operations, LLC, Eli Lilly and Company, ViacomCBS Inc., and
the Archdiocese of Saint Paul and Minneapolis Settlement Trust.
HANTZ MARCONI, J. This interlocutory appeal was filed by the
appellant, Zurich Insurance plc, German Branch (Zurich), from an order of the
Superior Court (Kissinger, J.) granting the motion of the Insurance
Commissioner of the State of New Hampshire, as Liquidator (Liquidator) of the
Home Insurance Company (Home), for approval of the Claim Amendment
Deadline pursuant to the Insurers Rehabilitation and Liquidation Act (Act).
See RSA ch. 402-C (2018 & Supp. 2021); see also Sup. Ct. R. 8(1); Super. Ct.
R. 46(a). Policyholders Bridgestone Americas Tire Operations, LLC, Eli Lilly
and Company, ViacomCBS Inc., and the Archdiocese of Saint Paul and
Minneapolis Settlement Trust (policyholders), submitted a brief in support of
the Claim Amendment Deadline.
The two questions presented are whether the superior court acted within
its discretion: (1) “in granting the Liquidator’s motion and approving the Claim
Amendment Deadline on the law, facts and circumstances presented”; and (2)
in concluding that the Claim Amendment Deadline strikes “a reasonable
balance between the expeditious completion of the liquidation and the
protection of unliquidated and undetermined claims” in accordance with RSA
402-C:46, I (2018). We answer both questions in the affirmative.
I. Background
We accept the statement of the case and facts as presented in the
interlocutory appeal statement and rely upon the record for additional facts as
necessary. See State v. Hess Corp., 159 N.H. 256, 258 (2009). Home is a New
Hampshire-domiciled insurance company, which wrote insurance and
reinsurance in almost all fifty states as well as Canada, Bermuda, Hong Kong,
and the United Kingdom. After experiencing financial difficulties, Home
stopped writing new personal lines of business in the early 1990s. By 1995,
Home had stopped writing all business, including commercial lines, with the
exception of certain personal lines subject to renewal in a few states.
In June 2003, Home was declared insolvent and the Liquidator was
appointed to administer and collect Home’s assets for distribution to Home’s
creditors. See In the Matter of Liquidation of Home Ins. Co., 154 N.H. 472, 475
(2006) (Home I). The Order of Liquidation established June 13, 2004 as the
deadline for filing claims, subject to provisions permitting the filing of late-filed
claims. At least 20,785 proofs of claim have been filed with the Liquidator. In
addition to proofs of claims for known claims, on which the amount of Home’s
liability was either quantified and due and owing or not yet established,
claimants were allowed to file proofs of claim encompassing unknown or
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potential claims. Claimants may update such proofs of claim after the June
13, 2004 deadline until the date of the Claim Amendment Deadline, which the
Liquidator proposes to be established 150 days from the trial court’s final
order.
Before liquidation, Home participated in the insurance market in the
United Kingdom as part of the American Foreign Insurance Association (AFIA).
As an AFIA member, Home entered into various agreements whereby it
reinsured certain insurance companies’ risks (the AFIA cedents), including
Zurich. In 1984, AFIA was purchased by Cigna and, as part of the transaction,
a subsidiary of Cigna, the Insurance Company of North America (INA),
assumed Home’s reinsurance obligations with respect to AFIA. By agreement,
INA was required to pay obligations directly to Home or the Liquidator in the
event of Home’s insolvency. In 1999, Century Indemnity Company (CIC)
succeeded to INA’s obligations.
When Home was declared insolvent in 2003, the reinsurance obligations
became payable to the Liquidator based on the underlying AFIA cedents’ claims
allowed in the liquidation. The Liquidator determined that the AFIA cedents’
claims are Class V claims under RSA 402-C:44 (2018), and no distribution to
Class V creditors was anticipated under the order of distribution set forth in
the statute. As incentive for the AFIA cedents to continue to file and prove
their claims, so that the Liquidator could collect reinsurance to use to pay
Class II creditors, the Liquidator entered into an agreement with the AFIA
cedents (AFIA Agreement).
Under the AFIA Agreement, the AFIA cedents agreed to cede to the
Liquidator their claims under the reinsurance contracts with Home and, in
return for continuing to file and quantify their claims, the Liquidator would pay
them a share of the reinsurance collected by the Liquidator from CIC as a Class
I administrative cost. See RSA 402-C:44, I (2018). This court upheld the AFIA
Agreement as fair and reasonable because the AFIA cedents would not have
filed claims against the Home estate without a financial incentive and, most
importantly, the agreement benefitted the Class II claimants by increasing the
likelihood that their claims would be paid. Home I, 154 N.H. at 489-90. A
Scheme of Arrangement (Scheme) was entered into in England to implement
the AFIA Agreement.
As of May 31, 2019, the Liquidator had resolved 19,695 of 20,785 proofs
of claim and allowed $2.705 billion of policy-related claims entitled to Class II
priority and a total of $3.08 billion in claims at all priority classes. As of the
same date, the Liquidator held $808 million in assets and had made early
distribution to guaranty associations totaling $256 million, interim
distributions at a 30% distribution percentage to non-guaranty association
Class II creditors totaling $620 million, and applied $56 million of special
deposits as setoffs for a total of approximately $1.74 billion in Home assets.
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The Liquidator does not expect there to be sufficient assets to pay Class II
claims in full or to make any distributions to claimants in lower priority
classes.
In August 2019, the Liquidator moved for approval of the Claim
Amendment Deadline for the submission or amendment of claims in the
liquidation proceeding. The effect of the deadline would be to require claimants
to identify all claims so that they may be determined, after which the final
distribution percentage can be calculated and the final distribution paid.
Claims not identified by the Claim Amendment Deadline would be barred.
The Liquidator asserted that “to move this proceeding to closure and
protect the interests of creditors with allowed Class II claims,” it was
“necessary to establish a deadline by which claimants must finally amend their
claims in order to provide the Liquidator with the specificity required for
determination of claims.” The Liquidator contended that establishing such a
deadline was supported by five factors.
First, the Liquidator asserted, “there has been a lengthy period of time
for claims against Home to emerge” — because Home stopped issuing policies
in 1995 and has been in liquidation since 2003, claims under Home policies
“have had at least twenty-three years to develop, and claimants have had
sixteen years to assert them in the liquidation.” Second, “the vast majority” of
proofs of claim have been determined, “resolving 19,695 (almost 95%) of the
20,785 proofs of claim, including 17,370 (95%) of the 18,257 Class II proofs of
claim.” Third, because the “remaining open proofs of claim . . . involve ‘long
tail’ exposures, such as asbestos or environmental exposures,” “[a]bsent some
requirement to update and substantiate their claims, these insureds are likely
to prefer to keep them open and await future developments.” Fourth, the
Liquidator asserted that he had “collected a substantial part of the assets of
the estate” and the remaining additional assets “principally consist of potential
reinsurance recoveries that will not be realized unless underlying claims
against Home are filed and proved.” Finally, the Liquidator explained, “keeping
the liquidation open requires the payment of the ongoing costs of administering
the estate” of approximately $13 million per year. Given these circumstances,
the Liquidator concluded that “the balance now clearly weighs in favor of
establishing the Claim Amendment Deadline.”
Zurich objected, arguing that the proposed deadline fails to strike the
“reasonable balance” required by RSA 402-C:46, I. Zurich contended that the
superior court should decline to set the proposed claims deadline, as it would
“cut off” Zurich’s ability to submit claims that were previously incurred but not
yet reported (IBNR claims). In addition, Zurich argued that the Liquidator
“should be estopped from imposing the proposed deadline” because it “is at
odds with” the AFIA Agreement, Zurich’s settlement with Home, and the
Scheme.
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Following a hearing, the superior court granted the Liquidator’s motion.
The court concluded that the Claim Amendment Deadline satisfied the
“reasonable balance” standard set forth in RSA 402-C:46, I. Rejecting Zurich’s
objections, the court reasoned:
Home has been in liquidation since June 2003, more than
seventeen years ago. The only recoverable non-administrative
claims that remain are those of Class II policyholders, whose
claims have had at least twenty-three years to develop since the
Home stopped providing material coverage in 1997. The Liquidator
does not owe a duty under the Act to protect the undetermined
claims of creditors below Class II, including those of the AFIA
cedents, as the Home estate lacks assets sufficient to make
distributions to Class II claimants. Consequently, the AFIA
cedents’ IBNR claims are not relevant to the “reasonable balance”
analysis imposed by the Act.
(Citations omitted.) The court subsequently denied Zurich’s motion for
reconsideration, but stayed the effect of its order pending resolution of
this interlocutory appeal.
II. The Act
The purpose of RSA chapter 402-C “is the protection of the interests of
insureds, creditors, and the public generally, with minimum interference with
the normal prerogatives of proprietors, through . . . [e]nhanced efficiency and
economy of liquidation,” and “[e]quitable apportionment of any unavoidable
loss.” RSA 402-C:1, IV(c), (d) (2018); see Home I, 154 N.H. at 488 (explaining
that “the purpose of RSA chapter 402-C is to protect preferred creditors by
reserving assets for them”). The Act “grants the liquidator broad authority to
administer liquidation proceedings,” as overseen by the superior court. Home
I, 154 N.H. at 482. The chapter “shall be liberally construed to effect” its
purpose. RSA 402-C:1, III (2018).
RSA 402-C:44 governs the order of distribution of claims from a
liquidated insurer’s estate, and establishes classes of claimants as part of the
distribution process. RSA 402-C:44 (2018); see Home I, 154 N.H. at 475.
Subject to a $50 per claim deductible, “every claim in each class shall be paid
in full or adequate funds retained for the payment before the members of the
next class receive any payment.” RSA 402-C:44. The statute sets forth ten
successive priority classes of claims against an insolvent estate and the order
in which they shall be paid. See RSA 402-C:44, I-X. Costs of administering
the liquidation are given first priority, RSA 402-C:44, I, followed by Class II
priority claims, which include policy-related claims of insureds, third party
claimants against insureds, and guaranty associations, RSA 402-C:44, II. See
Home I, 154 N.H. at 475-76.
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As to the distribution of assets upon liquidation, the Act provides that
“[u]nder the direction of the court, the liquidator shall pay dividends in a
manner that will assure the proper recognition of priorities and a reasonable
balance between the expeditious completion of the liquidation and the
protection of unliquidated and undetermined claims.” RSA 402-C:46, I. “When
all assets justifying the expense of collection and distribution have been
collected and distributed under this chapter, the liquidator shall apply to the
court for discharge.” RSA 402-C:48 (2018).
III. Analysis
The questions before us ask whether the superior court acted within its
discretion in granting the Liquidator’s motion for the Claim Amendment
Deadline. Thus, in reviewing the superior court’s decision, we determine
whether the record establishes an objective basis sufficient to sustain the
discretionary judgment made. See State v. Lambert, 147 N.H. 295, 296 (2001).
The party challenging the decision must demonstrate that the court’s ruling
was clearly untenable or unreasonable. See id.Zurich argues that the superior court erred in granting the Liquidator’s
motion because it fails to strike a “reasonable balance” between the expeditious
completion of the liquidation and the protection of IBNR claims since “the
Liquidator provided no estimate of either [Home’s] unrecovered assets or
remaining liabilities that would allow such an analysis to take place.”
Acknowledging that there is “no binding New Hampshire authority directly on
point,” Zurich relies upon a Vermont Supreme Court case, In re Ambassador
Insurance Company, Inc., 114 A.3d 492 (Vt. 2015), and asserts that the
superior court erroneously failed to follow the test set forth in that case. The
Liquidator counters that Zurich’s reliance on Ambassador is misplaced. The
Liquidator asserts that, unlike Ambassador where the company was solvent
“and all its policyholder claims had been paid ‘in full, with interest,’” here
“Home’s Class II creditors have only received 30% on their claims.”
Ambassador involved the liquidation of Ambassador Insurance Company,
Inc., an insurance company incorporated and domiciled in Vermont. Id. at
493. In 2008, in the course of the liquidation proceedings, the liquidator
recovered $205 million from a judgment against Ambassador’s auditor for
professional malpractice. Id. at 494. Those funds allowed Ambassador to pay
in full priority-four policyholders who had previously received only partial
distributions. Id. As of 2012, all court-approved policyholder claims had been
paid in full, with interest, and Ambassador had nearly $92 million in assets
remaining. Id.
The liquidator moved to establish a deadline by which all claimants,
including those who previously filed policyholder-protection claims, would need
to file final proofs of claim. Id. at 494, 496. NICO, assignee of two excess
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coverage policies with Ambassador, was in litigation over $20 million in claims
stemming from an underlying suit related to asbestos exposure, and objected
to the establishment of a final claim date, arguing that setting the date too
soon would “unreasonably limit claimants’ ability to submit proof of their
claims.” Id. at 495-96. Nonetheless, the trial court set December 31, 2013 as
the final deadline. Id.
On appeal, NICO argued that, because Ambassador was solvent and the
liquidator could “continue to cover all costs of administration in addition to
paying claims,” the final claim date did not “strike a reasonable balance
between the need to wind up the liquidation and the rights of policyholders
with unliquidated claims.” Id. at 497. The Vermont Supreme Court agreed.
Id. at 500.
At the outset, the court explained that the primary issue before it was
“not whether the trial court had the legal authority to set a final claim date,” or
“whether the liquidation estate should remain open forever, with no deadline
for presenting liquidated claims.” Id. at 497. Rather, the question was
“whether, given the unique circumstances of [the] case, the trial court erred in
setting December 31, 2013 as a final date for submission of proofs of liquidated
claims.” Id.
Those “unique circumstances” included that the liquidator had
“approximately $92 million in Ambassador assets—more than enough to pay
the $26 million in known [policyholder] claims, the approved [priority-five]
claims, and the reasonable costs of administration.” Id. at 497, 500. Thus,
Ambassador had “ample resources to meet its known obligations” to
policyholder claimants ($26 million), “to pay the $20 million in claims asserted
by NICO, if they [were] established, to pay claimants with known but not yet
liquidated [policyholder] claims (estimated in Ambassador’s reserves to be
around $18 million), to sustain its administrative costs for at least five years,
and even to pay the bulk of known obligations to [priority-five] claimants.” Id.
at 500-01. Given that Ambassador had “sufficient funds to pay additional
known and not yet liquidated, and even yet-unknown [policyholder] claims,”
the court could not conclude that “all assets that [could] be economically
collected and distributed [had] been collected and distributed.” Id. at 501
(quotation omitted).
The court distinguished the case before it from “the typical liquidation” in
which the insurance company is insolvent and “the limited assets relative to
the outstanding debt generally force an end to the liquidation proceeding: at
some point, the insolvent estate runs out of money, or its assets drop to a point
where it becomes uneconomic to continue administering the estate.” Id. at
500. The court also noted that “no [policyholder] claimants [were] currently
prejudiced by allowing additional time for those with known but unliquidated
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claims to perfect their claims, or for those with yet-unknown claims protected
by policyholder-protection claims to make actual claims.” Id. at 501.
We agree with the Liquidator that Ambassador is readily distinguishable
from the circumstances presented here. As the Liquidator asserts, “in
Ambassador, there were no interests of Class II policyholders weighing against
holding the liquidation open,” because “Ambassador was solvent, and all of its
policyholder claims had been paid in full, with interest.” (Emphasis and
quotation omitted.) In contrast, here, as the superior court found, “Home is
unable to pay all policyholder claimants in full, and it will be unable to issue
final disbursements to policyholder claimants until a claim amendment
deadline is approved.” The fact that there are insufficient assets to make whole
the priority Class II policyholders renders the analysis in Ambassador
inapplicable to the determination in this case of whether the Claim Amendment
Deadline satisfied the “reasonable balance” required by RSA 402-C:46, I.
Accordingly, we disagree with Zurich that it was error for the superior court to
decline to apply Ambassador.
Zurich also argues that the superior court erred in approving the Claim
Amendment Deadline because imposing a deadline “is at odds with” the AFIA
Agreement, Zurich’s settlement agreement with Home, and the Scheme. The
interpretation of a contract is a question of law, which we review de novo. In
the Matter of Liquidation of Home Ins. Co., 157 N.H. 543, 546 (2008). When
interpreting a written agreement, we give the language used by the parties its
reasonable meaning, considering the circumstances and the context in which
the agreement was negotiated, and reading the document as a whole. Id.Absent ambiguity, the parties’ intent will be determined from the plain meaning
of the language used in the contract. Id.As to the AFIA Agreement, Zurich does not point to any contractual
language in support of its argument. Regarding Zurich’s settlement agreement
with Home, Zurich relies on language whereby Home agreed “to do all things
necessary” to have policyholder claims admitted into Home’s estate as Class I
administrative expenses. As to the Scheme, Zurich relies on language that the
Liquidator is to use “all reasonable endeavors” to collect amounts owed by
reinsurers. We agree with the superior court that neither of these contract
provisions “addresses how long the Liquidator is obligated to accept the filing of
proofs of claim, nor purports to set aside generally applicable limitations the
Liquidator may ordinarily impose on the filing of such claims.”
We have reviewed Zurich’s remaining arguments and determine that they
are without merit and do not warrant further discussion. See Vogel v. Vogel,
137 N.H. 321, 322 (1993). Accordingly, we determine that the record
establishes an objective basis sufficient to sustain the superior court’s
discretionary judgment that the Claim Amendment Deadline assures “a
reasonable balance between the expeditious completion of the liquidation and
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the protection of unliquidated and undetermined claims,” RSA 402-C:46, I, and
that Zurich has failed to demonstrate that the court’s ruling was clearly
untenable or unreasonable, Lambert, 147 N.H. at 296.
Affirmed and remanded.
HICKS and DONOVAN, JJ., concurred.
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