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In the Matter of the Liquidation of Integrity Insurance Company/ the

April 18, 2012

IN THE MATTER OF THE LIQUIDATION OF INTEGRITY INSURANCE COMPANY/ THE DEFENDANT CLASS/ROBERT A. KEASBEY COMPANY.


On appeal from Superior Court of New Jersey, Chancery Division, Bergen County, Docket No. C-0063-03.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued December 20, 2011

Before Judges Payne and Simonelli.

This appeal, one of a series arising as the result of the insolvency and subsequent liquidation of Integrity Insurance Company, raises the issue of whether Integrity's Liquidator properly exercised his discretion, pursuant to N.J.S.A. 17:30C-28b, in denying recovery to third-party claimants who had asserted contingent claims against Integrity's estate arising from alleged asbestos-related injuries. Concluding, as did the Special Master and the liquidation court, which both considered the issue, that there was no abuse of discretion, we affirm.

I.

We first provide some background with respect to Integrity in order to place the present issue in perspective. Prior to its insolvency, Integrity, a company domiciled in New Jersey, was authorized to write policies of property and casualty insurance in all fifty states. In an order of liquidation, dated March 27, 1987, Integrity 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. Although all claims against Integrity's estate were initially to have been filed by a claim bar date of March 25, 1988, closure of the estate was complicated by the nature of the risks covered by Integrity's policies, many of which did not result in manifested injuries until many years after initial exposure to the injury-causing substance. In order to close the estate, the Liquidator proposed a Final Dividend Plan, dated June 17, 1996, that required the Deputy Liquidator to estimate and allow the present value of all contingent claims, including claims for incurred but not reported (IBNR) losses, collect from reinsurers the present value of any reinsurance due on such claims, arrive at a final determination of Integrity's assets and liabilities, calculate the percentage to be paid on policyholder claims, and 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).

In the course of approving a final plan for distribution of Integrity's assets, the liquidation court overseeing the matter considered whether contingent claims should be recognized as proposed by the Liquidator in the Final Dividend Plan. The court concluded that they should, and therefore approved the plan, thereby obligating Integrity's reinsurers to pay an estimated $876 million on contingent claims and greatly enhancing the assets in Integrity's estate. In re Liquidation of Integrity Ins. Co., 299 N.J. Super. 677, 680, 690-92 (Ch. Div. 1996).

However, on appeal to the Supreme Court, a three-person majority reversed.*fn1 In re Liquidation of Integrity Ins. Co., 193 N.J. 86 (2007). In doing so, the Court 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[.]

Holding this statutory language to be "unambiguous," id. at 95, the Court determined 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 stated: "At the outset, the Legislature determined that '[n]o contingent claim shall share in a distribution of the assets of an insurer which has been adjudicated to be insolvent[.]'

N.J.S.A. 17:30C-28(a) (emphasis supplied). Thus, the overarching legislative intent plainly is to bar any contingent claim." Ibid. (alterations in original).

The Court noted in a footnote that, in contrast to N.J.S.A. 17:30C-28a, governing first-party claims, subsection b of the statute, governing third-party claims, permitted a claim to be filed in a liquidation proceeding, "regardless of the fact that such claim may be contingent," and such claim "may be allowed" upon satisfaction of certain conditions. The contrast between the two provisions, the Court held, provided further insight into the Legislature's intent with respect to N.J.S.A. 17:30C-28a. Id. at 95 n.2.

In barring first-party contingent claims, the Court stated:

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 (footnote omitted).]

Although the Court invited the Legislature to amend N.J.S.A. 17:30C-28a to recognize first-party contingent claims so as to reduce administrative costs and shorten the period for liquidation, ...


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