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In re Ambassador Insurance Company, Inc.

Supreme Court of Vermont

January 23, 2015

In re Ambassador Insurance Company, Inc. (National Indemnity Company, Appellant)

Editorial Note:

This Opinion is subject to motion for reargument or formal revision before publication. See V.R.A.P. 40

On Appeal from Superior Court, Wash. Civ. Division. Geoffrey W. Crawford, J.

Andre D. Bouffard of Downs Rachlin Martin PLLC, Burlington, for Appellant.

Jacqueline A. Hughes and Daniel C. Burke of Storrow Buckley Hughes, LLP, and David R. Cassetty, Special Assistant Attorney General, Montpelier, for Appellee.

Present: Reiber, C.J., Dooley, Skoglund and Robinson, JJ., and Morris, Supr. J. (Ret.), Specially Assigned.


Page 493

Robinson, J.

[¶1] This appeal arises from the liquidation of Ambassador Insurance Company, Inc., a property and casualty insurance company incorporated in Vermont. Appellant National Indemnity Company (NICO), assignee to two claims under excess liability policies issued by Ambassador, appeals a superior court order setting a deadline by which all policyholders must file final proofs of claim. NICO argues that the court's deadline is unreasonable and that the court failed to consider available alternatives to a final claim date. We reverse.


a. Ambassador's Liquidation

[¶2] The material facts as of the time of the October 2012 superior court hearing in this matter are undisputed. This is the fourth appeal to this Court involving the liquidation of Ambassador, an insurance company. Ambassador was incorporated and domiciled in Vermont with a principal place of business in New Jersey. It acted as a surplus-lines insurer, insuring high-risk commercial entities and individuals who were unable to obtain insurance from a licensed insurer. In November 1983, the superior court placed Ambassador, which by that time was in a " hazardous financial condition," into receivership. In re Ambassador Ins. Co., 147 Vt. 344, 345, 515 A.2d 1074, 1075 (1986) ( Ambassador I ). The receiver, the commissioner of the Department of Banking and Insurance,[1] discovered the company had grossly underfunded its liability reserves, failed to keep track of policy transactions and cancellations, lost its reinsurance coverage, and was insolvent by at least $43 million using statutory accounting methods, and at least $25 million using less conservative liquidated-value accounting principles.[2] Id. at 345, 515 A.2d at 1076. Concluding that Ambassador could not be rehabilitated, the superior court ordered liquidation. Id. at 346, 515 A.2d at 1076. On appeal, this Court affirmed the decision to liquidate. Id. at 349, 515 A.2d at 1078.

[¶3] In 1987, following the appeal to this Court, the superior court issued a liquidation order. The liquidation order provides standards and processes for administering the liquidation estate, including the process for making distributions to Ambassador's creditors. The order set a deadline of March 1, 1988 for filing claims and accompanying proofs of loss. In addition to providing for the filing of actual known claims, the order allowed claimants to file potential claims based on circumstances within a claimant's knowledge reasonably

Page 494

expected to give rise to claims. The order also provided for policyholder-protection claims that allowed policyholders to preserve the right to assert claims against Ambassador in the future even if the policyholder did not know or have reason to know of the existence of an actual or potential claim at that time.

[¶4] Distribution under the order is controlled by a since-repealed provision in Vermont law relating to liquidation of insolvent insurance companies, 8 V.S.A. § 3595 (repealed 1991), providing for five levels of priority in distribution to unsecured creditors. The first three levels include administration expenses, employee compensation, and certain taxes and debts. Id. § 3595(b). The fourth priority level is reserved for claims arising under insurance policies and contracts. Id. The fifth priority level encompasses all other claims. Id.

[¶5] In the course of the liquidation process, the liquidator, who was appointed by the commissioner,[3] recovered $104 million in reinsurance coverage, in addition to other miscellaneous recoveries. The liquidator also secured a judgment against Ambassador's auditor for professional malpractice. See Thabault v. Chait, 541 F.3d 512, 515-18 (3d Cir. 2008). On the basis of this judgment, in 2008, the liquidator recovered $205 million for Ambassador. The new infusion of funds in 2008 allowed Ambassador to pay in full priority-four policyholders who had previously received only partial distributions, bringing the total paid to claimants to approximately $347 million. As of May 2012, all court-approved priority-four claims had been paid in full, with interest.

[¶6] Ambassador now has nearly $92 million in assets. The liquidator estimates that Ambassador has $26 million in known unsatisfied obligations to priority-four claimants remaining.[4] This figure does not include $20 million in claims by NICO that are the subject of ongoing litigation, as discussed below.

[¶7] The remaining unliquidated priority-four claims against the Ambassador estate involve asbestos and environmental policies. The liquidator testified that Ambassador has received specific claim information for some, but not all, claims made under previously filed policyholder-protection claims and that almost all of these claims are for unstated value. Ambassador currently has 185 open claim files for actual unliquidated priority-four claims, as contrasted with policyholder-protection claims for unknown future claims. Many of the open claims files comprise multiple specific claims. The collective policy limits on these claims that have been asserted but not yet liquidated total approximately $160 million. Ambassador's reserves for these claims are approximately $18 million. This sum represents the liquidator's professional judgment about the amount of reserves to assign to those liabilities. In addition, the liquidator estimates that the amount of unknown, unasserted potential future claims is around $13 million.[5]

[¶8] As of May 2012, Ambassador had $32 million in court-approved priority-five claims.[6] The liquidation order provides

Page 495

that priority-five claims cannot be paid until all priority-four claims have been paid, with interest.

b. NICO's Claims Against Ambassador

[¶9] Prior to the initiation of these liquidation proceedings, Ambassador issued two occurrence-based excess liability policies to A.P. Green Industries, Inc. for successive policy years, covering the period from December 1982 to June 1984. The policies insured A.P. Green against business-related losses, and each policy provided $10 million of excess coverage in A.P. Green's fourth layer of coverage. In other words, Ambassador's policies would provide additional coverage if the approximately $26 million of coverage in A.P. Green's underlying three layers of ...

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