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Commissioner of Insurance v. Munich American Reinsurance Co.3/5/1999
the defendant priority over other creditors of the same class." Id. at 517. If the funds of an insolvent entity are by statute held in trust for all creditors in a class, a creditor may not set off his interest in funds held in trust against a debt owed to the insolvent entity. See Kelly v. Commissioner of Banks, 239 Mass. 298, 301 (1921); Commonwealth v. Massachusetts Mut. Fire Ins. Co., 112 Mass. 116, 127-128 (1873) (no right of setoff for assessable subscribers to a mutual fire insurance company). But the fundamental principle of equal treatment among all creditors of the same class of an insolvent entity "does not require that general rules for the adjustment of mutual claims between a bank and its debtors be set aside." Rossi Bros. v. Commissioner of Banks, 283 Mass. 114, 119 (1933).
Passing by, for the moment, the possibility that the relationship between insurer and reinsurer may call for a different result, we conclude that a creditor of an insolvent insurer may apply amounts that it owes to the insolvent insurer as an offset against amounts that the insolvent insurer owes to it. There is nothing explicit or implicit in the statutory scheme for the liquidation of insolvent insurers (G. L. c. 175, Sects. 180A-180L) that makes common-law principles of setoff inapplicable. Authority that we have cited in our Discussion of common-law setoff addresses statutorily regulated liquidations of banks and insurance companies without any suggestion that rules of setoff would be different in a receivership or liquidation. See, e.g., Massachusetts Motor Vehicle Reinsurance Facility v. Commissioner of Ins., 379 Mass. 527, 532 & n.9 (1980) (receivership not governed by G. L. c. 175, Sects. 180A-180L, the Massachusetts version of the Uniform Insurers Liquidation Act). Any idea that, in such cases, the creditor who is allowed a setoff receives an improper preference is either explicitly or implicitly rejected. See Scott v. Armstrong, 146 U.S. 499, 510 (1892) ("Where a set-off is otherwise valid, it is not perceived how its allowance can be considered a preference, and it is clear that it is only the balance, if any, after the set-off is deducted which can justly be held to form part of the assets of the insolvent"); Scammon v. Kimball, 92 U.S. 362, 366 (1875) (insurance company bankruptcy ); Rossi Bros. v. Commissioner of Banks, supra. Cf. Greene v. Hatch, 12 Mass. 195, 198 (1815) ("it would have been exceedingly unjust to compel [the creditor] to pay the whole sum, and then receive a small dividend on the very money he had paid, perhaps the only money to be divided").
2. We turn then to the question whether there should be a different rule concerning setoff if the creditor of an insolvent insurer is a reinsurer of that insolvent insurer. Statutory provisions governing the liquidation of insolvent insurers in liquidation (G. L. c. 175, Sects. 6, 180A-180L) do not answer the question whether MARC is entitled to setoff. Those regulatory provisions, although comprehensive, are silent on the set-off issue. Statutory priorities in the distribution of assets to creditors give us no conclusive guidance about rights of setoff. In every other State, the rule is that a reinsurer does not receive an improper preference by having the benefit of setting off amounts an insolvent insurer owes the reinsurer against the reinsurer's debt to the insolvent. See Schwab, Onset of An Offset Revolution: The Application of Set-Offs in Insurance Insolvencies, 95 Dick. L. Rev. 449, 515-520 (1991) (noting States that allowed setoff to creditors of insolvent insurers). See also Colo. Rev. Stat. Sect. 10-3-529 (Supp. 1998); Mich. Comp. Laws Ann. Sect. 500.8130 (West 1993 & Supp. 1998); Miss. Code Ann. Sect. 83-24-59 (1991 & Supp.
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