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American Motorists Insurance Co. v. North Plainfield Board of Education

Superior Court of New Jersey, Appellate Division

November 12, 2013



Argued October 30, 2013

On appeal from the Superior Court of New Jersey, Law Division, Somerset County, Docket No. L-543-05.

Robert C. Epstein argued the cause for appellant (Greenberg Traurig, LLP, attorneys; Mr. Epstein, on the briefs).

John F. Casey argued the cause for respondent (Wolff & Samson PC, attorneys; Mr. Casey and Darren Grzyb, on the brief).

Before Judges Fuentes, Fasciale and Haas.


We granted leave to appeal from an order dismissing without prejudice a counterclaim filed by defendant North Plainfield Board of Education (the "Board") against plaintiff American Motorists Insurance Company ("AMIC"). Judge Edward M. Coleman entered the order pursuant to the Uniform Insurers Liquidation Act (the "Act"), N.J.S.A. 17:30C-1 to -31, and permitted the Board to file its counterclaim in a rehabilitation proceeding pending in Illinois. We affirm.

The underlying dispute between the parties flowed from a school construction project (the "project") in which the Board terminated the services of its general contractor (the "GC"). AMIC, the GC's surety, entered into an agreement with the Board to finish the project and filed a book-account complaint against the Board seeking progress payments that the Board withheld. The Board counterclaimed alleging that it was entitled to liquidated damages as a set-off against any potential award obtained by AMIC.

AMIC then became insolvent. The Illinois judge presiding over the rehabilitation proceedings issued a rehabilitation order, appointed the Illinois Director of Insurance as the Rehabilitator, and enjoined all claims against AMIC other than those in the Illinois rehabilitation proceedings. In response, AMIC moved before the Law Division to dismiss the Board's counterclaim, arguing that the reciprocity provisions in the Act precluded the court from adjudicating the Board's counterclaim in New Jersey. The Board opposed the motion contending that its counterclaim constituted a "mutual debt" and was therefore exempt under the Act. As a result, the Board argued that the Illinois court's rehabilitation order did not bar it from proceeding on its counterclaim in New Jersey.

Judge Coleman conducted oral argument, dismissed the counterclaim without prejudice, and issued a comprehensive written opinion. The judge agreed with AMIC, rejected the Board's contention that the Act was inapplicable, and concluded that the Board's counterclaims must proceed in Illinois pursuant to the Act.

On appeal, the Board maintains that the Act is inapplicable because its counterclaim constitutes a mutual debt. The Board also argues that the judge misapplied the principles of full faith and credit and comity. We review legal conclusions of the trial court de novo, without any special deference. Manalapan Realty, L.P. v. Twp. Comm. of Manalapan , 140 N.J. 366, 378 (1995). Against this standard, we see no error and affirm substantially for the reasons expressed by Judge Coleman. We add the following remarks.

"'The Act provides for a uniform, orderly and equitable method of making and processing claims against defunct insurers and provides for a fair procedure to distribute the assets of defunct insurers.'" Superintendent of Ins. of N.Y. v. Int'l Equip. Leasing, 247 N.J.Super. 119, 121 (App. Div.) (citation omitted), certif. denied, 126 N.J. 389 (1991). Upon adoption of the Act, New Jersey "specifically recognized the benefits of centralizing the management over delinquency proceedings in the courts of one state." Ballesteros v. N.J. Prop. Liab. Ins. Guar. Assoc ., 530 F.Supp. 1367, 1371 (D.N.J.), aff'd 696 F.2d 980 (3d Cir. 1982). Illinois also recognized the importance of uniform treatment of claimants against financially troubled insurers. 215 Ill. Comp. Stat. Ann. 5/221.10. New Jersey and Illinois are considered "reciprocal states" regarding the Act. See N.J.S.A. 17:30C-1f (stating that "'[r]eciprocal state' means any state other than this State in which . . . the provisions of the [the Act] . . . are in force"); see also 215 Ill. Comp. Stat. Ann. 5/221.1(1)(b) (defining "reciprocal states" in a similar manner).

Under both states' versions of the Act, title to all property of an insolvent insurer vests with the Commissioner or Director of Insurance as of the date of entry of a rehabilitation order. N.J.S.A. 17:30C-15b; 215 Ill. Comp. Stat. Ann. 5/191. Parties must bring all claims against that insurer in the State where the rehabilitation proceeding is pending, unless an ancillary receiver has been appointed. Int'l Equip. Leasing, supra, 247 N.J.Super. at 125. Here, no ancillary receiver has been appointed in New Jersey. Thus, the Board must bring its counterclaim in Illinois, where the rehabilitation proceeding is pending. "The sole exception to the requirement that the [rehabilitating] court maintain exclusive ...

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