New Hampshire Supreme Court Considers Offset Issue in the Home Insurance Company Liquidation

The New Hampshire Supreme Court will hear oral argument on April 30, 2008, in In the matter of the Liquidation of The Home Ins. Co., No. 2007-0794, N.H.), to consider whether the Superior Court erred in ruling that the a setoff claimed by Century Indemnity Company (“CIC”) lacked the mutuality necessary to trigger setoff under the New Hampshire Insurers Rehabilitation and Liquidation Act (the “Liquidation Act”).

In the appeal, CIC seeks review of the Superior Court’s interpretation of a reinsurance agreement (the “Agreement”), that assigned to CIC certain reinsurance claims against The Home Insurance Company (“Home”), which, CIC seeks to offset against amounts that Home claims are due from CIC.  In 1996, CIC’s parent company, CIGNA Insurance Group, was restructured under the supervision of the Pennsylvania Insurance Department and, in connection with the restructuring, CIC agreed to reinsure the general liability policies that certain CIC affiliates issued prior to January 1, 1987.  As part of the transaction, the affiliates agreed to assign the reinsurance for the reinsured liabilities to CIC.  The Agreement contained a provision stating that CIC “shall return to the respective Reinsured Company for face value, any such assigned reinsurance recoverables that are deemed by [CIC] to be uncollectible.”

The Superior Court held that the mutuality required for setoff was lacking because the assignment is not absolute, as the real parties in interest are CIC’s affiliates since CIC is asserting the claims of those affiliates and not its own.  CIC argues in its brief that the assignment of the reinsurance claims against Home was not conditional and the Superior Court’s interpretation of the Agreement is flawed.  The Liquidator asserts in his brief that the Agreement constitutes a transfer of claims from the affiliates with a view to setoff, which is conduct subject to an exception to offset rights in the Liquidation Act.  Click here to read CIC’s Brief, click here to read the Liquidator’s Brief, and click here to read CIC’s Reply.