When is an insurance commissioner not a government authority? A Federal District Judge reminds us that a State Insurance Commissioner, when acting as receiver of an insolvent insurer, is acting in a different capacity from his governmental role. This principle may prevent an insurance commissioner from falling within the contractual definition of “government authority”, even when the definition contains inclusive language on multiple capabilities.
In a decision rendered on June 21, 2021 in Trinidad Navarro, Insurance Commissioner of Delaware v. Allied World Surplus Lines Insurance Company Judge Kari A. Dooley of the U.S. District Court of Connecticut held that a claim made by Commissioner Navarro as liquidator of a risk retention group (RRG) was not a “government claim” within the meaning of an insurance policy. According to the court, the commissioner was acting as a “private receiver” for the benefit of the insurer. (The court did not distinguish between an RRG and an insurer.) Assuming it is not overturned or set aside, the decision could provide further guidance to future litigants in disputes over the nature and scope of claims. insurance receiverships.
Carrier Solutions Risk Retention Group, Inc. (CSRRG) was an RRG domiciled in Delaware and managed by service provider USA Risk Group (West) Inc. (USA Risk). In 2010, faced with insolvency, CSRRG was placed in liquidation proceedings by the Delaware Chancellery Court in accordance with the Delaware Insolvency Insurance Plan, with the then Delaware Commissioner appointed as liquidator. (Navarro became commissioner after his election in 2016.)
USA Risk was insured against professional liability risks under an insurance policy from Allied World Surplus Lines Insurance Company (Allied World). The policy imposed separate limits of liability for ordinary “claims” against USA Risk on the one hand, and “government claims” on the other hand, defined as a claim or investigation (in the relevant part) “brought by a federal, state or municipal body, insurance agency or other governmental or quasi-governmental authority, in any capacity, whether in its own name, on behalf of an individual or entity, or by an individual or an entity on behalf of the agency or authority.
In May 2012, the Delaware receiver as receiver sued USA Risk alleging that USA Risk caused or contributed to CSRRG’s insolvency. USA Risk has submitted a claim to Allied World under the Professional Liability Policy. After bearing the costs of the USA Risk litigation for approximately three years in the receiver’s case, around July 2015, Allied World withdrew its defense and claimed that it had met its limit of liability of 25,000. $ applicable to “government claims”. In response, the Receiver argued that her claim was not a “government claim” and therefore qualified for the more generous policy limit of $ 3,000,000.
CSRRG and USA Risk settled their dispute for $ 1,000,000. CSRRG, as the assignee of USA Risk, sued Allied World in federal district court in Connecticut, where Allied World (and a predecessor insurer that originally issued the policy) had administrative offices. CSRRG sought to recover damages resulting from Allied World’s failure to pursue its defense of the claim after approximately July 2015. Allied World decided to dismiss the case on the grounds that the receiver’s claim against USA Risk constituted a “government claim” under Allied World policy. and that, therefore, Allied World was only liable for $ 25,000.
Allied World argued that the Insurance Commissioner is a government authority and therefore the CSRRG’s claim against Allied World is categorically a “government claim”. The Commissioner, in turn, argued that he was not acting in his capacity as a government official, but rather as a “private receiver” on behalf of the CSRRG. (The Commissioner also argued in the alternative that, even if the claim were otherwise classified as a government claim, an exclusion in the definition, for claims by a government authority in its role as a client, would not apply. The court explained that it did not need to address this issue because it argued that the definition of “government claim” was unusable in the first place.)
According to the court, Vermont law (where the policy was issued) and Connecticut law would not differ on the interpretive issue before it. Therefore, the court found that it was not necessary to specify which state law governed. (The court also analyzed Delaware case law in its opinion, without expressly stating that Delaware law controlled.) While noting a possible ambiguity in the definition of the “government claim” policy, the court explained that neither the neither Commissioner nor Allied World argued that the policy language was ambiguous. The court would make an interpretative decision based solely on the language itself.
Denying Allied World’s motion to dismiss, Judge Dooley explained that she found the Commissioner’s position (that he was not a government authority in this case) “persuasive”. The Liquidation Order of CSRRG issued by the Delaware Chancellery Court had granted the Commissioner all rights and interests in all of the property of CSRRG and authorized the Commissioner to act generally on behalf of CSRRG for the benefit of its members, policyholders, creditors and other stakeholders. The Commissioner’s action against Allied World was functionally a private party action, CSRRG.
The court did not cite any insurance policy or other previous contract that would have been so interpreted in a court proceeding and did not invoke any other textual predicate for its decision. The court relied primarily on rulings from state courts, including Delaware courts, holding more generally or in other contexts that an insurance commissioner acts in two different capacities. For example, Justice Dooley cited a New York case in which the State Insurance Liquidation Office (a branch of the Insurance Department) was immune from state audits of government agencies. A Pennsylvania case was cited for the proposition that a regulator’s prior actions as a regulator could not be raised against it as an affirmative defense in an action brought by it as a receiver. A Kentucky court had ruled that the commissioner as receiver did not fall under the state’s open public records law.
The tribunal rejected the Commissioner’s argument regarding the allegedly plain language of politics (“any governmental or quasi-governmental authority in any capacity …” (emphasis added)) and the Commissioner’s exclusive role as receiver. . In other words, the Commissioner argued that he was the only official authorized by law to act as receiver, and therefore the use of the term “in any capacity” in policy must capture this role. The court held that, on the contrary, the term “government debt” must exclude the quality of the receiver. The court did not explain its specific basis for interpreting “in any capacity” to mean, in essence, something less than all possible capacity.
It remains to be seen whether Navarro will change the way insurance receiverships are viewed by courts in contractual situations involving terms such as “government authority”. For now, it seems that Justice Dooley at least broke new ground in explaining that the definition of an insurance policy of “government claim”, even when it refers to some capacity of a government agency, must categorically exclude the statutory rights and exclusive role of receiver.
Source: Daniel A. Rabinowitz is partner of Kramer Levin. This article is republished with permission from Kramer Levin Perspectives.
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