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American Alternative Insurance v. American Protection Insurance Company; and Does 1-20

March 22, 2013

AMERICAN ALTERNATIVE INSURANCE CORPORATION,
PLAINTIFF,
v.
AMERICAN PROTECTION INSURANCE COMPANY; AND DOES 1-20, INCLUSIVE, DEFENDANTS.



ORDER GRANTING DEFENDANT'S MOTION TO DISMISS ACTION

I. INTRODUCTION

Defendant American Protection Insurance Company has filed a motion to dismiss the complaint or stay the action in recognition of a Rehabilitation Order entered against Defendant in Illinois. For reasons discussed below, the motion to dismiss shall be granted.

II. FACTS AND PROCEDURAL BACKGROUND

On November 9, 2011, Plaintiff American Alternative Insurance Corporation ("AAIC" or "Plaintiff") filed a complaint in this Court against Defendant American Protection Insurance Company ("APIC" or "Defendant") seeking declaratory relief and equitable contribution for legal costs incurred by Plaintiff in the defense of an alleged mutual insured, Meadowbrook Water Company of Merced ("Meadowbrook"). Meadowbrook had been sued in the action Affholter, et al. v. Franklin County Water District, et al., U.S.D.C. Eastern District of California, No. 1:07-CV-0388 OWW. The suit was tried to a defense verdict. Both parties in the instant action acknowledge that the defense of Meadowbrook was paid for entirely by Plaintiff. (Court Document 17, at 3.) Plaintiff argues that Defendant owed (and continues to owe) a mutual duty to defend Meadowbrook because of insurance polices in effect between Defendant and Meadowbrook at the relevant times in question. (Court Document 1, at 3.) Plaintiff now seeks contribution from Defendant for, among other things, half the costs of defending the Meadowbrook suit. (Court Document 1, at 5-6.)

To complicate matters, on August 16, 2012, the Circuit Court of Cook County, Illinois, issued an order ("Rehabilitation Order") placing American Motorists Insurance Company ("Amico") into rehabilitation. (Court Document 17, at 16-28.) The Rehabilitation Order included a provision enjoining "all other persons and entities...from bringing or further prosecuting any claim, action or proceeding at law or in equity or otherwise, in this State or elsewhere" against Amico. (Court Document 17, at 14.) The Rehabilitation Order further appointed Illinois' Director of Insurance as the statutory rehabilitator of Amico. Defendant APIC had merged into Amico in 2004. (Court Document 17, at 1.) Based upon this, on September 24, 2012, Defendant APIC filed this motion to dismiss or stay the current action, arguing that this Court must honor the Illinois Rehabilitation Order and decline jurisdiction over the matter. On or about September 10, 2012, Plaintiff AAIC filed an opposition to Defendant's Motion to Dismiss.

III. DISCUSSION

Defendant APIC urges the Court to dismiss this action in recognition of the Rehabilitation Order issued against it in Illinois, and in deference to the principle of reciprocity embodied in the Uniform Insurers Liquidation Act ("UILA"). Defendant argues that:

"Reciprocal states are afforded special treatment under the UILA. In particular, reciprocal states, such as California here, honor sister state orders by courts in other reciprocal states (here, Illinois) enjoining further proceedings against an insurer ordered into rehabilitation, and dismiss or stay pending actions against insurers in rehabilitation or liquidation." (Court Document 17, at 2.) Plaintiff AAIC, on the other hand, urges the Court to retain jurisdiction over the matter, and argues that:

"[C]alifornia law does not require enforcement of an out-of-state order abating proceedings issued subsequent to an Order for Rehabilitation. While California has enacted the provisions of the Uniform Insurance Liquidation Act, Cal. Ins.

Code §§1061 et seq., the Ninth Circuit's decision in Hawthorne Savings F.S.B. v. Reliance Insurance Company of Illinois, 421 F.3d 835 (2005), makes clear that jurisdiction remains squarely before this Court." (Court Document 18, at 2.) An analysis of Defendant's motion to dismiss must therefore begin with an examination of the UILA and its significance to the current action.

A. THE UNIFORM INSURERS LIQUIDATION ACT

Both parties acknowledge that California and Illinois have each enacted the UILA, which governs insurance companies that have assets and liabilities located in multiple states. (See California Insurance Code, §1064.1 et seq.; Illinois Insurance Code, § 215 ILCS 5/187 et seq.) Among other things, the UILA "[is] intended to resolve conflict of law questions arising during an insurance insolvency proceeding and to coordinate proceedings filed in more than one state." Reliance v. Hernandez, 2003 WL 22064371 (Cal.App. 5 Dist.) (unpublished).*fn1 To accomplish this, the UILA provides a uniform and equitable means of making and processing claims against an insurer who is under a rehabilitation order in its domiciliary state, and provides for the equitable distribution of the insurer's assets. This goal of uniformity among the states is reflected in the statutes of both California and Illinois. In California, section 1064.12(b) of the statute states: "The Uniform Insurers Rehabilitation Act shall be so interpreted and construed as to effectuate its general purpose to make uniform the law of those states that enact it." Cal. Ins. Code, § 1064.12(b). Section 221.10 of the analogous Illinois statute similarly provides its purpose "is to promote uniformity in the liquidation, rehabilitation, reorganization or conservation of insurers doing business in more than one state." 215 ILCS 5/221.10. A central goal of the UILA, then, is reciprocity. Member states recognize and honor the rehabilitation orders issued by other member states so that insurance companies domiciled in those states are liquidated in a uniform, orderly and equitable manner without interference from external tribunals.

Both parties acknowledge that California and Illinois are reciprocal states under the UILA. This places a special duty upon the courts of each state. "Under the [UILA], California courts must enforce and honor the orders of a sister state court made in connection with the liquidation of an insolvent insurance company domiciled in a reciprocal state, i.e., one which has likewise adopted the provisions of the Uniform Act, unless California appoints its own ancillary receiver to marshal assets present in this state. Even in this circumstance, however, a great deal of deference must be given to orders of the domiciliary state. [Citations.]" Reliance v. Hernandez, 2003 WL 22064371 at *3. According to moving papers submitted by both parties, an ancillary receiver has not been appointed in California. The issue then becomes what effect California's membership in the UILA, and its status as a reciprocal state with Illinois, has on the current action involving an insolvent insurance company from Illinois.

Central to a discussion of the effect, if any, this Court must give to the Rehabilitation Order is an understanding of the case in light of the distinction between in personam and ...


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