Reorganization and Liquidation

A court affirmed the denial of W.R. Grace & Co.’s asbestos insurance claims against the liquidation estate of Grace’s insolvent excess-of-loss insurer, on the ground that Grace failed to submit timely “absolute” claims under New Jersey’s version of the Uniform Insurers Liquidation Act. Grace, which has been undergoing bankruptcy restructuring, had established a plan with a creditor’s committee to create a trust to pay asbestos claims. The plan, however, was not approved by the bankruptcy court prior to the deadline to submit excess of loss claims to the liquidation estate of Grace’s excess insurer. When Grace submitted a proof of claim to the estate, the liquidator denied the claim, relying on provisions of the Uniform Insurers Liquidation Act that permit payment of only “absolute” claims, as opposed to “contingent” claims.

Grace ultimately appealed to the state court, which affirmed. The court agreed the claims were “contingent” as “the value of the claims at issue had not been fixed by actual payment, settlement, final judgment or a claims resolution procedure approved by the federal bankruptcy court,” notwithstanding estimates provided by Grace’s expert witness. Because the estimates did not “stand on their own,” the claims could not be considered “absolute” under state precedent. The court also rejected Grace’s argument that even if the claims were contingent, they should be paid to prevent a “windfall.” The court distinguished state law, and held that, under the McCarran-Ferguson Act, federal bankruptcy law “plays no part” where the state Uniform Insurers Liquidation Act provided “a comprehensive mechanism” for the liquidation and payment of claims. Commissioner of Insurance of the State of New Jersey v. Integrity Insurance Co./W.R. Grace & Co., Case No. A-2505-10T4 (N.J. Super. Ct. App. Div. Jan. 11, 2012).

This post written by Michael Wolgin.

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Reliance Insurance Company in Liquidation (the “Liquidator”) petitioned a Pennsylvania state court for a declaratory judgment holding that Aramark Corporation must reimburse certain state guaranty associations (“GAs”) for claims allegedly improperly paid to Aramark and subsequently presented to the Reliance Estate by the GAs for payment. The Liquidator also sought a declaration that Aramark’s claims against the Estate should be given low priority. The gravamen of the dispute is that Aramark purportedly received coverage for the same claims under a contingent liability policy (“CLP”) issued by Inter-Ocean Reinsurance Company, which had been backed by Reliance collateral. The GAs intervened seeking a declaration that Aramark must exhaust the coverage limits under the CLP and reimburse them for claims that were covered by the CLP.

The court dismissed the Liquidator’s claims for lack of standing, finding that it could not sue on the GAs’ behalf, and, further, held that claim priority should be determined through the administrative process before the court gets involved. The Pennsylvania court also held that it lacked jurisdiction to adjudicate the foreign GAs’ claims, but held that the Pennsylvania Workers’ Compensation Security Fund could continue to pursue recovery of claims that were allegedly improperly paid to Aramark. Reliance Ins. Co. in Liquidation v. Aramark Corp., Case No. 5 REL 2008 (Pa. Commw. Ct. Dec. 9, 2011).

This post written by Ben Seessel.

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