The Delaware Court of Chancery has denied U.S. Bank, N.A.’s request for an order establishing its right to retain cash and securities valued at $156 million and maintained by Freestone Insurance Company, a reinsurer now in receivership, in a custodial account at the Bank. When Freestone’s delinquency proceedings began, it maintained assets valued at $175 million with the Bank, which held the assets in trust to secure the insurer’s right to payment from Freestone (and others) as reinsurer. The Bank turned over only $19 million of the assets and moved for an order establishing its right to retain the rest, arguing it was entitled to keep the assets as security for potential indemnification claims and present and future expenses. The court denied the Bank’s motion, finding the Bank was not entitled to retain indefinitely assets valued at $156 million nor was it entitled to a security interest in those assets. Instead, the court ordered the Bank to turn over the $156 million to the Insurance Commissioner of the State of Delaware, allowing the Bank to keep only its current administrative fees to the extent incurred as of a date thirty days after the date the commissioner demanded the assets’ return. In the Matter of the Liquidation of Freestone Insurance Co., C.A. No. 9574-VCL (Del. Ch. Dec. 24, 2014).
This post written by Renee Schimkat.
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