Ohio Supreme Court Rejects Class 2 Priority for Reinsurance Claims

On June 11, 2003, the Ohio Supreme Court issued a decision finding that claims under reinsurance agreements are Class 5 general creditor claims against the estate and are not "claims under policies" entitled to Class 2 policyholder priority. In so doing, the court reversed an earlier court of appeals decision affording Class 2 priority to reinsurance claims.

This litigation arose out of the Ohio General Insurance Company insolvency and was initiated by a reinsurance creditor seeking to challenge the liquidator's classification of its reinsurance claims as Class 5 claims under Ohio's priority statute. The trial court affirmed the liquidator's classification, finding legislative intent to afford direct policyholders priority over reinsurance claims. In a September 6, 2001, decision, however, the court of appeals reversed, concluding instead that the term "policies" is broad enough to include all contracts of insurance. In reaching its conclusions, the court of appeals rejected arguments based on legislative intent and similarly rejected the reasoning set forth in case law from other states finding reinsurance claims to be ineligible for policy-level treatment based on public policy grounds.

The liquidator filed a request for review of the court of appeals decision by the Ohio Supreme Court. NOLHGA, the NAIC, and the NCIGF each filed amicus briefs in support of the liquidator's request for review. On February 6, 2002, the Ohio Supreme Court ruled in favor of allowing the appeal, notwithstanding formal opposition by the reinsurer. The liquidator's opening brief on the merits was filed in April 2002, and NOLHGA, the NAIC, and the NCIGF each filed amicus briefs in support of the liquidator's position on the merits.

Oral argument was heard on January 7, 2003. On June 11, the Ohio Supreme Court rendered its decision in favor of the liquidator, reversing the earlier court of appeals decision. In its opinion, the court explained that the decision is based on the text of the statute, which differentiates between direct consumer insurance and reinsurance, using the term "policy" to refer to direct consumer insurance and generally using the terms "contract" or "treaty" to refer to reinsurance. The court further noted that the statute refers to the terms "reinsurance" and "policy" together when it intends to include reinsurance within the meaning of the term "policy." The court also found it useful to consider that reinsurance claims are not consistent with the other types of consumer claims that, by law, are afforded Class 2 priority. For these reasons, the Ohio Supreme Court concluded that claims under reinsurance agreements do not constitute claims under policies and must, therefore, be filed as Class 5 claims against the estate.

Legal Seminar Brochures and Web Page Now Available

Brochures for NOLHGA's 12th Annual Legal Seminar were mailed last week. The brochures feature the program agenda, featured speakers, hotel and flight information, and the registration form.

The Legal Seminar, which will take place on August 21 and 22, 2003, at The Palace Hotel in San Francisco, will be held in conjunction with the MPC meeting scheduled for August 19 and 20. The guest room rate for those attending either NOLHGA meeting is $189 per night, and this rate will be honored on both the weekend before and the weekend following the NOLHGA meetings. More information about the Legal Seminar and MPC meeting can be found at the joint meeting Web page.

We encourage you to register for one or both meetings (separate registration is required) as soon as possible. The deadline for Legal Seminar registration is July 14, and the deadline for hotel reservations and MPC meeting registration is July 25.

For more information about the Legal Seminar, please contact Aimee Frye (703.787.4115; [email protected]) or Meg Melusen (703.787.4130; [email protected]). For more information about the MPC meeting, please contact Karen Early at 703.787.4101 or [email protected].