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Commissioner of Insurance of the State of New Jersey v. Integrity Insurance Company/ W.R. Grace & Co

January 11, 2012

COMMISSIONER OF INSURANCE OF THE STATE OF NEW JERSEY, PLAINTIFF-RESPONDENT,
v.
INTEGRITY INSURANCE COMPANY/ W.R. GRACE & CO., DEFENDANT.



On appeal from Superior Court of New Jersey, Law Division, Bergen County, Docket Nos. C-7022-86 and C-63-03.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued October 18, 2011

Before Judges Payne, Reisner and Simonelli.

Claimant, W.R. Grace & Co., a company that is presently in Chapter 11 reorganization in bankruptcy, appeals from the denial of its claims for insurance benefits on account of its alleged liability for asbestos-related injuries that were allegedly covered by policies of excess insurance purchased from Integrity Insurance Company, an insurance entity that is presently in liquidation. At issue is whether Grace's proofs of claim met the requirements of the Uniform Insurers Liquidation Act, as codified in New Jersey in N.J.S.A. 17:30C-1 to -31, and interpreted by the New Jersey Supreme Court. Determining that those proofs failed to meet the requirements of the Act and precedent, we affirm.

I.

We preface our discussion of the legal issues raised in this appeal with background information regarding the parties and a description of relevant legal precedent.

A. Integrity's Liquidation Proceedings and the Amended Liquidation Closing Plan In an order of liquidation dated March 27, 1987, Integrity

Insurance Company was declared insolvent and placed in liquidation, with the New Jersey Commissioner of Insurance appointed as liquidator pursuant to N.J.S.A. 17:30C-9. Initially, all claims against the liquidated estate were to have been filed by a claim bar date of March 25, 1988. However, closure of the estate was complicated by the fact that, in many cases, damages resulting from the risks against which Integrity insured, such as injury as the result of exposure to asbestos as claimed in the present matter, did not manifest until many years after initial exposure - a circumstance leading to a substantial delay in the filing and resolution of claims. In an effort to close the estate, the Commissioner proposed a Final Dividend Plan, dated June 17, 1996, that required the deputy liquidator to

(1) estimate and allow the present value of all Contingent Claims, including claims for IBNR*fn1 losses; (2) collect from reinsurers the present value of any reinsurance that will be due on such claims; (3) arrive at a final determination of Integrity's assets and liabilities; (4) calculate the percentage to be paid on the Fourth Priority [policyholder] claims; and (5) pay a final dividend on all claims accorded Fourth Priority or higher status. [In re Liquidation of Integrity Ins. Co, 165 N.J. 75, 80 (2000).]

As the liquidation proceeded, the Chancery court considered whether contingent claims should be recognized, as proposed in the Final Liquidation Plan. In reaching a conclusion on the issue, the court reviewed three options presented by the liquidator: (1) holding the liquidation open until all contingent claims had become absolute - a very lengthy process; (2) establishing a cut-off date at which time the right to collect on contingent losses would terminate - a process that would deprive some injured persons of any recovery; and (3) permitting the estimation of contingent, future claims at their net present value. In re Liquidation of Integrity Ins. Co., 299 N.J. Super. 677, 680-81 (Ch. Div. 1996), rev'd, 193 N.J. 86 (2007). The court chose the third alternative. Id. at 692.

In 2004, the Chancery court approved Integrity's fourth amended final dividend plan, which included IBNR claims, thereby obligating Integrity's reinsurers to pay an estimated $876 million on contingent claims; sums that could be used to enhance Integrity's estate. In re Liquidation of Integrity Ins. Co., supra, 299 N.J. Super. at 680, 690-92. On appeal, we reversed in an unreported opinion, In re Liquidation of Integrity Insurance Company, No. A-6972-03 (App. Div. October 2, 2006), and the matter was appealed further to the Supreme Court.

In an opinion by Justice Rivera-Soto, In re Liquidation of Integrity Insurance Co., 193 N.J. 86 (2007), a three-person majority of the Court*fn2 focused on the proper construction of N.J.S.A. 17:30C-28a(1), which provides in relevant part:

a. No contingent claim shall share in a distribution of the assets of an insurer which has been adjudicated to be insolvent by an order made pursuant to [N.J.S.A. 17:30C-30a], except that such claims shall be considered, if properly presented, and may be allowed to share where

(1) Such claim becomes absolute against the insurer on or before the last day fixed for filing of proofs of claim against the assets of such insurer[.]

In light of that statutory language, which the Court held to be "unambiguous," Integrity, supra, 193 N.J. at 95, the Court held that because IBNR claims would not be "absolute" as of the claim bar date, they could not participate in Integrity's fourth amended final dividend plan. The Court reasoned:

Because the process by which the Liquidator proposes to estimate IBNR claims of necessity entails looking outside of each claim to other similar claims in respect of their very existence, nature, extent, and cost, IBNR claims fail to satisfy that most basic of requirements in order to be "absolute" that in order for a claim to participate in the liquidation of an insolvent insurer's estate, the claim, in each of its fundamental respects, must stand on its own, and not by reference to any other claim. [Id. at 96.]

The Court observed:

No doubt our conclusion delays, yet again, the final liquidation of Integrity's estate, which may result in an increase in administrative costs. That result, however, is compelled by our obligation to hew to the Legislature's mandate. The Legislature, in the rational exercise of its discretion, in the future may amend N.J.S.A. 17:30C-28 to allow estimated claims to participate in the assets of a liquidated insolvent insurer. As presently written, however, N.J.S.A. 17:30C-28 does not permit any claim other than an "absolute" or unconditional claim to share in the estate of an insolvent insurer, and, as written, that statute's mandate must be honored. [Id. at 97.]

The Legislature has declined to amend the statute despite a strong invitation by the dissenting justices to do so.

In response to the Supreme Court's decision, the liquidator submitted an Amended Liquidation Closing Plan (Amended LCP), dated June ...


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