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Stare Decisis, Law of the Case, and Public Policy Dictate that New York Law Apply to Liquidation Claims

Blogs, Reinsurance

Midland Insurance Company’s liquidation proceedings have been pending since 1986. New York’s Superintendent of Insurance, Midland’s statutory liquidator, makes recommendations to the court regarding distribution of the liquidation estate, and since 1994, objections to those recommendations are considered by a referee. Following the Superintendent’s recommendation to deny certain claims that were not maintainable under New York law, the issue of choice of law became critical to the viability of such claims.

This week, the New York Supreme Court, Appellate Division, in In Re: Liquidation of Midland Ins. Co., — N.Y.S.2d –, 2010 WL 89525 (N.Y.A.D. 1 Dept. Jan. 12, 2010), reversed an order granting “the major policyholders’ motion for partial summary judgment declaring that for each policyholder an individualized choice-of-law review must be undertaken following the ‘grouping of contacts’ approach and giving predominant weight to the policyholder’s principal place of business.” The Appellate Division also granted the intervening reinsurers’ cross motion seeking the continued application of New York substantive law to the liquidation claims.

The Appellate Division relied on the doctrine of stare decisis to follow Midland LAQ, 269 A.D. 2d 50, 709 N.Y.S. 2d 24 (N.Y.A.D. 2000), in which the court concluded that “[i]n order to assure that all Midland creditors are treated equally and in accordance with conflicts of law principles, it is necessary that the court apply New York law in ascertaining” which coverage is triggered. Id. at 63.

The court in In Re: Liquidation of Midland Ins. Co. also concluded that under the doctrine of “law of the case”, parties and their privies are precluded from relitigating an issue decided in an ongoing proceeding, finding that the interests of the major policy holders were represented in the earlier proceeding. 

Finally, consistent with the reasoning of Midland LAQ, the court concluded that there was a “paramount state interest” to apply New York substantive law so that all creditors in the liquidation proceeding were treating equally.