G. C. Murphy Co. v. Reserve Insurance Company, 54 N.Y.2d 71 (1981)

The Uniform Insurers Liquidation Act mandates that claims against a defunct multistate insurer undergoing liquidation in its domiciliary state must be pursued in the domiciliary liquidation proceedings, even if the claimant holds security obtained under a state statute designed to protect local residents.

Summary

G. C. Murphy Co. sued Reserve Insurance Company in New York to recover unearned premiums. Reserve, an unauthorized foreign insurer, was required to post a bond under New York Insurance Law § 59-a. Subsequently, Reserve was placed in liquidation in Illinois. Murphy sought to enforce its claim against the bond in New York. The New York Court of Appeals held that the Uniform Insurers Liquidation Act, adopted by both New York and Illinois, requires Murphy to pursue its claim in the Illinois liquidation proceedings, despite the security. The court reasoned that allowing independent actions would undermine the Act’s goal of orderly and equitable liquidation of multistate insurers. While recognizing the hardship to Murphy and the intent of § 59-a, the court emphasized the supremacy of the Uniform Act in cases of conflict.

Facts

G. C. Murphy Company (Murphy) sued Reserve Insurance Company (Reserve), an Illinois corporation unauthorized to do business in New York, to recover $875,000 in unearned insurance premiums. Pursuant to New York Insurance Law § 59-a, Reserve was ordered to post an undertaking of $1,077,000 before filing any pleadings. Reserve complied, with American Reserve Insurance Company of New York (American Reserve) providing the bond. Later, the Circuit Court of Cook County, Illinois, placed Reserve in liquidation due to insolvency and enjoined all actions against it.

Procedural History

Special Term denied Reserve’s motion to stay or dismiss Murphy’s action, holding that the Uniform Insurers Liquidation Act did not deprive Murphy of its security under § 59-a. Special Term granted Murphy’s motion to join American Reserve as a defendant. The Appellate Division modified, staying the action against Reserve and denying Murphy’s motions, holding that Murphy must pursue its claim in Illinois. The Appellate Division granted Murphy leave to appeal to the New York Court of Appeals, certifying the question of whether its order was properly made.

Issue(s)

Whether, absent the appointment of an ancillary receiver in New York, a claim asserted in a New York action against an out-of-State insurance company that is undergoing liquidation must be pursued in the domiciliary State of the insurer, even though that claim is secured by an undertaking filed pursuant to section 59-a of the Insurance Law.

Holding

No, because the Uniform Insurers Liquidation Act requires that claims against a defunct insurer be resolved within the liquidation proceedings in the domiciliary state, absent an ancillary receiver appointed in the forum state.

Court’s Reasoning

The court emphasized that the Uniform Insurers Liquidation Act aims to provide a uniform system for the orderly and equitable administration of assets and liabilities of defunct multistate insurers. Both New York and Illinois adopted the Act. Since Illinois is a “reciprocal state,” New York must recognize the Illinois liquidator’s right to take possession of Reserve’s assets and stay proceedings against it. The court rejected Murphy’s argument that Insurance Law § 522(4) gives a secured creditor an absolute right to adjudicate its claim in an out-of-state action. Section 522 deals with the priority of claims, not the filing of claims. The exclusive provisions for filing claims are found in § 521, which only allows claims to be presented to the ancillary receiver (if any) or the domiciliary receiver. The court stated, “[T]he interpretation of section 522 of the Insurance Law that plaintiff would have us adopt would clearly frustrate the spirit and intent of the Uniform Insurers Liquidation Act.” The court acknowledged the purpose of § 59-a to provide recourse for New York residents but noted the legislature specified that the Uniform Act controls when its provisions conflict with other Insurance Law provisions. Despite hardship to Murphy, the court deferred to the legislature’s determination that uniform liquidation outweighs individual adversity. The court allowed Murphy to join American Reserve as a party defendant, so Murphy could protect its right to security after the claim against Reserve is favorably adjudicated in Illinois.