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In re Liquidation of American Mutual Liability Insurance Co.6/1/2001
Suffolk.
March 5, 2001.
Statute, Retrospective statute. Due Process of Law, Retroactive application of statute. Insurance, Insolvency of insurer. Massachusetts Insurers Insolvency Fund. Subrogation. Contract, Reinsurance agreement. Set-Off.
Civil action commenced in the Supreme Judicial Court for the county of Suffolk on January 17, 1989.
A motion for approval of a plan of liquidation, filed on May 14, 1999, was heard by Judith A. Cowin, J., and questions of law were reported by her.
A single justice of this court has reserved and reported four questions of law concerning the amended plan of liquidation of American Mutual Liability Insurance Company (AMLICO) and American Mutual Insurance Company of Boston (AMI) (collectively, American Mutual), which came before the county court on a motion for approval by the Commissioner of Insurance (commissioner), acting as the permanent receiver (receiver) of American Mutual.
1. The questions.
The questions reserved and reported to this court are as follows:
"a. Do claims under workers' compensation policies have priority over claims under other types of insurance policies in the distribution of the AMLICO and AMI estates?
"b. If the answer to question (a) is yes, do claims presented by the Massachusetts Insurers Insolvency Fund [MIIF] and other guaranty funds and associations attributable to covered claims under policies of workers' compensation insurance have priority over claims under other types of insurance policies in the distribution of the AMLICO and AMI estates?
"c. Are case reserves and incurred but not reported reserves established by insurers reinsured by AMLICO or AMI properly used as offsets against amounts presently due and owing from such insurers as reinsurers of AMLICO or AMI?
"d. Does the requisite mutuality for offset exist between obligations of AMLICO as reinsurer of First State Insurance Company (First State) and obligations of New England Reinsurance Corporation (NERCO) as reinsurer of AMLICO, where NERCO and First State are members of the First State Insurance Group that participate in an inter-company pooling and shared underwriting arrangement?"
2. The answers.
For the reasons set forth later in this opinion, we answer these questions as follows. Question (a) concerns whether the priority accorded workers' compensation claims in G. L. c. 175, ? 180F, as amended after the March 9, 1989, liquidation date of American Mutual, applies retroactively, effectively ensuring no recovery for the objectors (Liggett Group Inc. and Avondale Mills, Inc.). We conclude that it does. As to question (b), we hold that the same priority applies to claims presented by MIIF and other guaranty funds and associations (guaranty funds) that are attributable to covered claims under policies of workers' compensation insurance.
We answer question (c) in the negative, in the absence of a sufficient basis in the common law to conclude that case reserves and incurred but not reported reserves (IBNR) established by insurers reinsured by American Mutual, may be used as offsets against amounts presently due and owing from such insurers as reinsurers of American Mutual. As to question (d), we conclude that the requisite mutuality for offset does not exist between obligations of AMLICO as reinsurer of First State, and obligations of NERCO as reinsurer of AMLICO.
3. Reported questions (a) and (b).
Background.
American Mutual, property and casualty insurers domiciled in Massachusetts, wrote primarily workers' compensation, general liability, and automo
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