Miss. Ins. Guar. As'n. v. MS Cas. Ins. Co., et al.
| Docket Number: | 2005-CA-01158-SCT Linked Case(s): 2005-CA-01158-SCT ; 2005-CA-01158-SCT |
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| Supreme Court: | Opinion Link Opinion Date: 10-26-2006 Opinion Author: CARLSON, J. Holding: AFFIRMED |
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| Additional Case Information: |
Topic: Contract - Novation - Direct insurance - Section 83-23-105 - Covered claims - Section 83-23-109(f) - Claims from nonresidents - Section 83-23-123(2) - Additional discovery - M.R.C.P. 56(f) - Full accounting - Motion to strike Judge(s) Concurring: SMITH, C.J., WALLER, P.J., DIAZ, EASLEY, GRAVES, DICKINSON AND RANDOLPH, JJ. Non Participating Judge(s): COBB, P.J. Procedural History: Summary Judgment Nature of the Case: CIVIL - CONTRACT |
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| Trial Court: |
Date of Trial Judgment: 06-08-2005 Appealed from: MADISON COUNTY CHANCERY COURT Judge: William Joseph Lutz Disposition: Granted Summary Judgment in favor of Appellee Case Number: 2004-337 |
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| Party Name: | Attorney Name: | |||
| Appellant: | MISSISSIPPI INSURANCE GUARANTY ASSOCIATION |
JAMES D. HOLLAND, LOUIS GLAZIER BAINE, JR., ROBERT S. ADDISON, TERRY R. LEVY,
JASON HOOD STRONG |
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| Appellee: | MS CASUALTY INSURANCE COMPANY AND AMERICAN RELIABLE INSURANCE COMPANY, INC. | KELLY D. SIMPKINS, WALTER D. WILLSON, ROSEMARY G. DURFEY |
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Synopsis provided by:  If you are interested in subscribing to the weekly synopses of all Mississippi Supreme Court and Court of Appeals hand downs please contact Tammy Upton in the MLI Press office. |
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| Topic: | Contract - Novation - Direct insurance - Section 83-23-105 - Covered claims - Section 83-23-109(f) - Claims from nonresidents - Section 83-23-123(2) - Additional discovery - M.R.C.P. 56(f) - Full accounting - Motion to strike |
| Summary of the Facts: | MS Casualty Insurance Company, a Mississippi-based insurance company, began issuing workers’ compensation insurance policies in 1993. American Reliable Insurance Company, Inc. is an Arizona-based insurance company which also formerly issued workers’ compensation insurance policies. General Reinsurance Corporation was the reinsurer of MS Casualty’s workers’ compensation policies from January 1, 1993, to December 31, 1995 and was also the reinsurer of American Reliable’s workers’ compensation policies. American Reinsurance Company was the reinsurer of MS Casualty’s workers’ compensation policies effective January 1, 1996. On September 28, 2000, American Reliable exited the workers’ compensation business by entering an “Assumption Reinsurance Agreement” with Legion Insurance Company, a Pennsylvania insurance company. MS Casualty followed suit on September 29, 2000. The agreement between MS Casualty and Legion retroactively transferred MS Casualty’s obligations under the policies to Legion as of January 1, 1993, through December 31, 2000. The agreement between American Reliable and Legion retroactively transferred American Reliable’s obligations to Legion as of October 1, 1999, through December 31, 2000. Gen Re and Am Re, the reinsurers, entered into assignment agreements which transferred to Legion all obligations they owed MS Casualty and American Reliable. Legion sent policyholders “Certificates of Assumption” stating that Legion would be responsible for any claims under the policies. Legion did not contact the claimants who were already receiving benefits under the MS Casualty and American Reliable policies. Subsequently, Legion entered rehabilitation due to cash flow problems. The Pennsylvania Insurance Commissioner petitioned for liquidation of Legion, and on July 25, 2003, liquidation was ordered by the Commonwealth Court of Pennsylvania. The insurance commissioner was appointed as the statutory liquidator and was responsible for making arrangements for continued payment of claims under Legion’s policies. The Liquidator filed an emergency application for stay pending appeal or confirmation of automatic stay with respect to the portion of the court’s Order of Liquidation allowing direct access to reinsurance. Gen Re and Am Re were ordered to pay any monies they would have owed to Legion as reinsurance to the Liquidator. The Mississippi Insurance Guaranty Association, by statutory authority, stepped into the shoes of Legion to protect the interests of Legion’s Mississippi policyholders and claimants. After reviewing the claims made to Legion, MIGA decided that the claims were not “covered claims under direct insurance” within the meaning of the statute. MIGA requested MS Casualty and American Reliable to pay any claims made under the policies to avoid numerous multiparty lawsuits filed by the claimants. There were 181 claims at issue. Rather than having to deal with all of these potential lawsuits, MIGA requested MS Casualty and American Reliable to try one suit before a chancellor to decide if the claims were “covered claims under direct insurance.” MS Casualty and American Reliable commenced suit against MIGA in the Madison County Chancery Court demanding reimbursement of claims paid by MS Casualty and American Reliable, and MIGA’s assumption of liability for future claims. The reinsurers, Gen Re and Am Re, were original parties to the suit, but they were dismissed by MS Casualty and American Reliable because Gen Re and Am Re were ordered to pay their monies to the Liquidator. The chancellor concluded that the agreements constituted a novation between MS Casualty and American Reliable and Legion, which ceded to Legion all responsibilities previously assumed by MS Casualty and American Reliable; the claims constituted covered claims according to the statute; the policies assumed by Legion were direct insurance according to the statute; and, the policyholders, and not the claimants themselves, were the only ones to whom notice had to be given concerning the agreements. The chancellor granted summary judgment in favor of MS Casualty and American Reliable and ordered MIGA to reimburse past claims and to assume payments of future claims. The chancellor denied MIGA’s motion to rejoin the reinsurers since it was the opinion of the chancellor that MS Casualty and American Reliable should never have been parties to the suit. The chancellor urged MIGA to sue Gen Re and Am Re if MIGA felt that the Liquidator would not cover the claims of the Mississippi claimants. The chancellor also denied MIGA’s motion to stay the grant of summary judgment for further discovery. In a subsequent hearing, MIGA argued before the chancellor that some of the claims were from claimants who did not live in Mississippi and, thus, MIGA was not liable for those claims. At the final hearing, the chancellor ruled that MIGA was liable for six of the seven contested nonresident claims. The chancellor denied MIGA’s motion for a full accounting of the funds of MS Casualty and American Reliable and granted the motion to strike portions of the record considered redundant, as filed by MS Casualty and American Reliable. MIGA appeals. |
| Summary of Opinion Analysis: | Issue 1: Novation The first issue is whether novation was accomplished by substituting Legion for MS Casualty and American Reliable in the insurance policies. A novation may occur where the debt remains the same, but a new debtor is substituted. In such event, the original debtor is acquitted, his obligation is extinguished, and the creditor contends himself with the obligation of the second debtor. The parties must intend novation for novation to be accomplished but assent may be implied. Here, novation was accomplished through implied assent. Legion agreed to be liable for any claims under the policies. MS Casualty and American Reliable transferred all of their reserves set aside to pay claims under the policies to Legion. All premiums were thereafter paid to Legion instead of MS Casualty and American Reliable. The policyholders began paying their premiums to Legion after Legion sent the policyholders notice in the form of assumption certificates. Through their actions, the parties no doubt intended for Legion to be liable for any claims. Issue 2: Direct insurance The second issue is whether the assumption reinsurance agreements constitute direct insurance. According to section 83-23-105, MIGA is only responsible for claims stemming from direct insurance and not reinsurance. The agreements are clearly direct insurance. Legion stepped into the shoes of MS Casualty and American Reliable. None of the terms and conditions of the contracts changed; but instead, the names of the parties were simply substituted. The reserves were transferred to Legion, and the policyholders began paying premiums to Legion. The risk was entirely upon Legion; therefore Legion was directly liable. Issue 3: Covered claims MIGA, by statute, is only permitted to pay “covered claims” as defined by section 83-23-109(f). MIGA argues that because MS Casualty and American Reliable are still solvent, they are responsible for paying the claims under the policies. Further, MIGA argues that it cannot pay an insurance company based upon the plain language of section 83-23-109(f); but instead, it can only pay policyholders or claimants. MIGA’s argument is misplaced. The chancellor correctly perceived the issue as being whether the claims made to Legion were covered claims stemming from direct insurance. The claims were made to Legion at the time of insolvency, and Legion is the direct insurer because novation occurred. This has nothing to do with MS Casualty and American Reliable – the claims were not made to those insurance companies, and they are not reinsurers. The chancellor ruled that MIGA was responsible for reimbursing MS Casualty and American Reliable for the claims it would have owed under the statute because it was liable for the claims to Legion. Thus, the chancellor did not err inasmuch as his decision does not conflict with the statute. Issue 4: Claims from non-residents MIGA argues that it is not liable for any claim where the claimant is not a resident of Mississippi. Section 83-23-109(f) clearly states that either the claimant or the policyholder must be a resident of Mississippi. Under section 83-23-123(2), MIGA is liable for claims to Legion from nonresident claimants whose policyholders were located in Mississippi at the time of the insured event if those claimants first tried to seek recovery in their home states and were denied. Here, the chancellor unquestionably adhered to the statutory scheme of recovery. Issue 5: Additional discovery MIGA argues that the chancellor abused his discretion in denying MIGA’s M.R.C.P. 56(f) motion to stay the ruling of summary judgment for additional discovery. Specifically, MIGA claims that various facts relating to the issues of whether there was a novation, whether the claims were “covered claims,” and whether the policies held by Legion constituted “direct insurance” were not present in the record. The record clearly demonstrates that MS Casualty and American Reliable had not received payment from any source, and all relevant dates are present in the record. Thus, the chancellor did not abuse his discretion in denying the motion. Issue 6: Full accounting MIGA filed a motion for an accounting of the funds of MS Casualty and American Reliable. However, MIGA presented no evidence that MS Casualty or American Reliable ever received funds that rightfully belonged to Legion nor did MIGA produce any evidence that either MS Casualty or American Reliable were dishonest in presenting their figures. Issue 7: Motion to strike The chancellor granted the motion of MS Casualty and American Reliable to strike portions of the report. MS Casualty and American Reliable argue that those portions were redundant or brought up new issues not raised before summary judgment was granted. MIGA gave redundant answers and more information than the chancellor said would be allowed. Therefore, MIGA acted at its own peril, and the chancellor did not abuse his discretion in striking the record. |
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