Reliance Insurance Company was placed in liquidation on Oct. 3, 2001 by Order of the Commonwealth Court of Pennsylvania. The Reliance liquidation was, and still is, one of the largest insurance company liquidations in U.S. history. Reliance has been in the process of marshaling assets and paying its liabilities for the past 12 years through a court-appointed Liquidator, namely the Insurance Commissioner of Pennsylvania.
The Delaware Supreme Court recently offered new insight into a dissolved corporation’s exposure to liability for third party claims. InAnderson v. Krafft-Murphy Company, Inc.,1 the Court held as a matter of first impression in Delaware that the statutory scheme governing the dissolution and winding up of a Delaware corporation does not contain a general statute of limitations that would shield a dissolved corporation from liability.
I. Factual Background and Procedural History2
The Supreme Court of the State of Delaware recently reversed a Court of Chancery decision declining to appoint a receiver for a dissolved Delaware corporation, Krafft-Murphy Company, Inc. (Krafft). The Chancery Court determined that a receiver was inappropriate because Krafft had no property for the receiver to distribute to potential tort victims. The Supreme Court disagreed, holding that an unexhausted insurance policy is property of the dissolved company even after its three-year wind-up period under Delaware law.
In Anderson v Krafft-Murphy Co. Inc., 2013 Del. LEXIS 597 (Del. Nov. 26, 2013), the Delaware Supreme Court held that Sections 278 and 279 of the Delaware General Corporation Law, 8 Del. C.
A New York state trial court has held that plaintiffs alleging asbestos injuries may bring suit against a dissolved and liquidated New Jersey corporation and may effectuate service of process on the dissolved corporation by serving the corporation’s insurer. Germain v. A.O. Smith Water Products Co., No. 190281/12, 2013 WL 6065986 (N.Y. Sup. Ct. Oct 23, 2013).
On September 24, 2013, in Farmers Mut. Fire Ins. Co. v. NJPLIGA, N.J. , 2013 WL5311272 (2013), the New Jersey Supreme Court ruled that policy limits of solvent insurers must be exhausted before the New Jersey Property‐ Liability Insurance Guaranty Association ("NJPLIGA") could be responsible for long‐tail claims under policies issued by insolvent insurers. NJPLIGA is a statutory entity created to provide New Jersey policyholders with protection when insurers become insolvent.
A liability insurance company has the right to take over the defense of a policyholder and to control all settlement discussions. What happens if the carrier fails to pursue settlement negotiations with sufficient zeal, knowing full well that it was leaving the insured exposed to liability above policy limits? You may be at risk in California if your insurer does this to you.
The United States District Court for the Northern District of Texas has held that underlying claims that the insureds misused investment funds intended for the purchase of nonperforming mortgages did not allege negligent acts, errors, or omissions in performing “mortgage broker services” within the policy’s definition of “Insured Services.” Axis Surplus Ins. Co. v. Halo Asset Mgmt., LLC, 2013 WL 5416268 (N.D. Tex. Sept. 27, 2013).
The United States Court of Appeals for the Tenth Circuit, applying Oklahoma law, has held that a bankruptcy or insolvency exclusion may bar coverage for the insured broker’s claim, where the broker’s actions were connected to the bankruptcy of its client’s former insurer. C.L. Frates & Co. v. Westchester Fire Ins. Co., 2013 WL 4734093 (10th Cir. Sept. 4, 2013).