Humphreys v. SureTec Ins. Co.

311 A.3d 1175

Michael HUMPHREYS, Insurance Commissioner of the Commonwealth of Pennsylvania, in his official capacity as Statutory Liquidator of Bedivere Insurance Company, formerly known as OneBeacon Insurance Company, Plaintiff

v.SURETEC INSURANCE COMPANY, Defendant

(Ancillary to In Re: Bedivere Insurance Company, (In Liquidation), No. 1 BIC 2021)

No. 1 BIC 2023

Commonwealth Court of Pennsylvania.

Argued December 4, 2023

Decided February 15, 2024

Original Jurisdiction

Leslie Miller Greenspan, Philadelphia, for Plaintiff.

W. Alan Torrance, Jr., Pittsburgh, for Defendant.

BEFORE: HONORABLE ANNE E. COVEY, Judge, HONORABLE STACY WALLACE, Judge, HONORABLE MARY HANNAH LEAVITT, Senior Judge

OPINION BY JUDGE COVEY

Before this Court is SureTec Insurance Company’s (SureTec) Preliminary Objection to Bedivere Insurance Company’s (Bedivere)¹ statutory liquidator, Michael Humphreys’ (Liquidator) Complaint filed pursuant to Section 530(a) of Article V of The Insurance Department Act of 1921 (Act),² 40 P.S. § 221.30(a), to recover funds Bedivere transferred to SureTec on December 30, 2020.³ The issue before this Court is whether Liquidator stated a legal claim upon which this Court may grant relief.

Background⁴

[1] On November 30, 2020, in litigation between OneBeacon Insurance Company (OneBeacon) and Fireman’s Fund Insurance Company (FFIC), the United States (U.S.) District Court for the Southern District of New York (District Court) entered judgment against OneBeacon in the amount of $2,966,993.31. See Complaint ¶¶ 14, 24. On December 30, 2020, OneBeacon appealed from the District Court’s order to the Second Circuit Court of Appeals (Second Circuit Court), and simultaneously filed a Motion for Approval of Supersedeas Bond and to Stay Execution of Judgment Pending Appeal (Bond Motion). See id. ¶ 25. Also on December 30, 2020, Bedivere, "formally [sic] known as OneBeacon,"⁵ and SureTec⁶ executed a supersedeas bond (Bond),⁷ binding themselves to pay FFIC up to $3,020,000.00. Id., Ex. 1 at 1, 3; see also id. ¶ 26. Bedivere paid SureTec $3,020,000.00 by wire transfer on December 30, 2020, for the Bond.⁸ See id. ¶ 27. FFIC did not oppose the Bond Motion. See id. ¶ 28.

On March 2, 2021, Jessica K. Altman (Altman), then Pennsylvania Insurance Commissioner, filed a petition in this Court to place Bedivere into liquidation under the Act (Liquidation Petition).⁹ See id. ¶¶ 5, 29; see also In Re: Bedivere Ins. Co. (In Liquidation) (Pa. Cmwlth. No. 1 BIC 2021) (Bedivere I). By March 11, 2021 Order (Liquidation Order), this Court granted the Liquidation Petition and, upon the unanimous consent of the Board of Directors of Bedivere and Bedivere’s sole shareholder Trebuchet US Holdings, Inc., appointed Altman and her successors in office (i.e., Humphreys) as Bedivere’s statutory Liquidator. See id. The Liquidation Order "vest[ed] [Liquidator] with title ‘to all property, assets, contracts and rights of action (assets) of Bedivere of whatever nature and wherever located, whether held directly or indirectly, as of the date of [the] filing of the [Liquidation Petition (i.e., March 2, 2021)].’ " Complaint ¶ 35 (quoting Liquidation Order ¶ 4); see also Bedivere I.

On August 27, 2021, the District Court granted the Bond Motion. See Complaint ¶ 30; see also id. Ex. 2. On October 6, 2022, the Second Circuit Court affirmed the District Court’s judgment in FFIC’s favor and against OneBeacon/Bedivere. See id. ¶ 31; see also id. Ex. 3. On October 7, 2022, SureTec paid $2,973,291.98 to FFIC in settlement of the judgment ($3,020,000.00 less $46,708.02). See id. ¶ 32. On February ¶, 2023, SureTec returned $80,946.51 to Bedivere ($46,708.02 in excess funds, plus $34,238.49 in interest). See id. ¶ 33; see also id. Ex. 4.

Facts

On March 10, 2023, Liquidator filed the Complaint in this Court against SureTec, alleging therein that, by executing the Bond, SureTec became Bedivere’s creditor. See id. ¶ 37. Liquidator avers that Bedivere’s payment of $3,020,000.00 to SureTec was for, or on account of, an antecedent debt or debts incurred by Bedivere relative to the Bond, see id. ¶ 38, which was executed and made within one year before Altman filed the Liquidation Petition. See id. ¶ 39. Liquidator claims that Bedivere’s $3,020,000.00 payment to SureTec "may be to enable SureTec to receive a greater percentage of the debt than another creditor of the same class would receive," see id. ¶ 40, because Bedivere was likely insol- vent¹⁰ when it paid SureTec the $3,020,000.00, see id. ¶ 41, and, thus, SureTec’s $2,973,291.98 payment to FFIC was a preferential transfer. See id. ¶ 43. Liquidator seeks to have this Court: (1) exercise summary jurisdiction under Section 530(g) of the Act, 40 P.S. § 221.30(g); (2) enter judgment against SureTec to void the $3,020,000.00 transfer; and (3) award Liquidator costs of suit, interest, and such other relief as this Court deems proper.

On June 22, 2023, SureTec filed the Preliminary Objection to the Complaint (Preliminary Objection) pursuant to Pennsylvania Rule of Civil Procedure (Civil Rule) 1028(a)(4), Pa.R.Civ. P. 1028(a)(4) (relating to demurrer), asserting that, although the transfer of funds from Bedivere to SureTec occurred on December 30, 2020, the debt was not created until the judgment was affirmed on October 6, 2022, some 22 months later. SureTec maintains that the fact that its obligation to satisfy the judgment was created by the terms of the Bond issued prior to the filing of the Liquidation Petition is irrelevant. SureTec claims that, because SureTec’s preexisting contractual obligation to satisfy the judgment did not become a debt until the final judgment was affirmed, the transfer of assets 22 months earlier was not for, or on account of, an antecedent debt. SureTec declares that Bedivere’s transfer of funds to SureTec for the Bond was not a voidable preference under Section 530(a) of the Act and, thus, Liquidator failed to state a valid legal claim against SureTec.

On July 19, 2023, Liquidator opposed the Preliminary Objection, asserting that, when Bedivere and SureTec executed the Bond, and when this Court granted the Liquidation Petition, Bedivere retained an interest in the funds transferred to Sure- Tec to ensure that FFIC’s judgment, if upheld on appeal, was paid. Liquidator contends that it was not until October 6, 2022, more than a year after the litigation pending against OneBeacon was stayed, that the appeal for which the Bond was issued was resolved against OneBeacon. Liquidator declares that, after SureTec paid the judgment to FFIC, SureTec returned the remaining cash and interest to Bedivere, indicating that Bedivere’s interest in those funds had remained part of the liquidation estate.

[2–5] On November 2, 2023, SureTec filed a Motion to File Reply and Sur-Reply Briefs, joined by Liquidator, which this Court granted on November 3, 2023. SureTec filed its Reply Brief on November 13, 2023. Therein, SureTec continued to argue that Bedivere’s interest in the Bond funds was contingent on the Second Circuit Court’s decision on appeal, and it proffered Liquidator’s First Report Regarding the Status of the Liquidation of the Bedivere Estate (First Report) in support thereof.¹¹ See Reply Brief Ex. A. SureTec newly added that Bedivere no longer had a property interest in the monies it paid SureTec to secure the Bond. SureTec also newly asserted that, rather than an antecedent debt, the Bond funds were an insurance payout in the ordinary course of business ¹² to settle and pay a policyholder’s disputed claim and that, if this Court rules that Bedivere’s posting of the Bond funds was a voidable preference, distressed insurers would no longer be able to obtain supersedeas bonds.

[6, 7] Liquidator filed its Sur-Reply Brief on November 13, 2023, in which it pointed out that SureTec raised new arguments in its Reply Brief that it could and should have made in its brief supporting the Preliminary Objection.¹³ Liquidator further declared that, to the extent this Court allows SureTec to present its new arguments, SureTec was not a policyholder acting in the ordinary course of business but, rather, was a surety that assumed the risk of doing business with an insurer, and that Bedivere’s interest in the monies it paid to SureTec for the Bond was neither contingent nor extinguished because it always retained a reversionary interest in the funds.

The parties presented argument on the Preliminary Objection to this Court on December 4, 2023. This matter is now ripe for this Court’s disposition.

Discussion

[8–14] Initially, under the Pennsylvania Rules of Appellate Procedure (Appellate Rules) titled Summary and Formal Proceedings Against Insurers, Appellate Rule 3783(b) specifies that the Civil Rules apply to adversarial proceedings like insurance liquidation matters. See Pa.R.A.P. 3783(b). Thus, preliminary objection filing rules under Civil Rule 1028(a)(4) (relating to demurrer)¹⁴ apply to insurance liquidation matters. See Pratter v. Penn Treaty Am. Corp., 11 A.3d 550 (Pa. Cmwlth. 2010) (Brobson, J., single judge op.).

In ruling on preliminary objections, [this Court] must accept as true all well-pleaded material allegations in the [complaint], as well as all inferences reasonably deduced therefrom. Th[is] Court need not accept as true conclusions of law, unwarranted inferences from facts, argumentative allegations, or expressions of opinion. In order to sustain preliminary objections, it must appear with certainty that the law will not permit recovery, and any doubt should be resolved by a refusal to sustain them.

A preliminary objection in the nature of a demurrer admits every well-pleaded fact in the complaint and all inferences reasonably deducible therefrom. It tests the legal sufficiency of the challenged pleadings and will be sustained only in cases where the pleader has clearly failed to state a claim for which relief can be granted. When ruling on a demurrer, a court must confine its analysis to the complaint.

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