In re: Liquidation of Legion Indemnity Corporation

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State: Illinois

Court: 1st District Appellate

Docket No: 1-05-4069 Rel

Case Date: 03/29/2007

Preview:FOURTH DIVISION FILED: March 29, 2007

No. 1-05-4069

IN RE LIQUIDATION OF LEGION INDEMNITY CORPORATION

Appeal from the ) Circuit Court of ) Cook County, Illinois. ) (GE Frankona Reinsuranc Company Ltd., and ) ERC Frankona Reinsurance (III), Ltd., ) No. 02 CH 6695 ) Plaintiffs and Counterdefendants-Appellees, ) Honorable Patrick E. McGann, ) Judge Presiding. v. ) ) Legion Indemnity Company, in Liquidation ) ) Defendant and Counterplaintiff-Appellant). )

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JUSTICE MURPHY delivered the opinion of the court: This case is before us on appeal of the trial court's order of summary judgment in favor of plaintiffs GE Frankona Reinsurance Company, Ltd., and ERC Frankona Reinsurance (III), Ltd., foreign insurance companies based in the United Kingdom known collectively as Eagle Star (Eagle Star). During the course of liquidation proceedings of defendant Legion Indemnity Company (Legion Indemnity), an Illinois insurance company, Eagle Star sought declaratory judgment from the trial court to declare its rights with respect to the calculation and reporting of balances it was owed. Based on a written agreement between Eagle Star and Legion Insurance Company (Legion Insurance), a Pennsylvania insurance company, and Legion Indemnity (collectively known, and referred to here, as Legion Companies) and the findings of the

1-05-4069 Pennsylvania Commonwealth Court (Commonwealth Court) with respect to that agreement in Koken v. Legion Insurance Co., 865 A.2d 945 (Pa. 2004), the trial court granted Eagle Star's motion for summary judgment. For the reasons that follow, we affirm the trial court's summary judgment order. I. BACKGROUND In 1998 and 1999, until Legion Companies cancelled the program, the parties were involved in an international property insurance program managed by Global Managers, Inc. (GMI Program). Under the GMI Program, Eagle Star was the lead underwriter under the quota share reinsurance program. Eagle Star and other reinsurance companies provided reinsurance for Legion Indemnity and Legion Insurance policies that would then be written as part of the GMI Program. Legion Indemnity and Legion Insurance utilized net accounting to report a single cession statement to Eagle Star as Legion Companies. The cession statements to Eagle Star accounted for monies due Eagle Star for its share of premiums as well as monies due Legion Companies for loss claims. On February 21, 2002, the parties entered into an agreement in an attempt to resolve a dispute over what monies were owed between the companies under the GMI Program. The parties, Legion Indemnity and Legion Insurance, collectively as "Legion" throughout the agreement, and Eagle Star outlined their respective responsibilities under the GMI Program and how each would carry these out. Gregg Frederick signed this agreement on behalf of both Legion entities as "Sr. V.P. Contract Compliance." On March 19, 2002, Legion Insurance sent "Revised Eagle Star Cession Statements" to Eagle Star. The statements covered the entire program years of 1998 and 1999. The statements

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1-05-4069 identified a balance due "Legion" for 1998 and a balance due Eagle Star for 1999. The final statement sheet combined the two years and identified a net balance due Eagle Star from "Legion" of $2,227,661 as of March 18, 2002. On March 28, 2002, Legion Insurance was placed in rehabilitation by the Commonwealth Court. Within the rehabilitation order, the Commonwealth Court entered an antisuit injunction provision, prohibiting the filing of any cause of action against Legion Insurance. On April 3, 2002, the Illinois trial court entered an order of conservation against Legion Indemnity and placed the company under the control of the Director of Insurance. The Illinois court also included an antisuit injunction provision in its order, prohibiting any party with knowledge of the order from filing suit against Legion Indemnity. On August 16, 2002, in a letter on "Legion Insurance Company" letterhead, Legion Companies sent new cession statements to Eagle Star. In addition to the combined final statement sheet noted above, cession statements for the years 1998 and 1999 were provided for both Legion Indemnity and Legion Insurance. These new statements indicated that Eagle Star owed Legion Indemnity $12,235,767, while Legion Insurance owed Eagle Star $14,513,429. The cover letter also included the address and bank accounts where funds due should be sent. On October 4, 2002, Eagle Star filed a complaint for declaratory relief in the United States District Court for the Eastern District of Pennsylvania. Eagle Star sought a resolution of the billing dispute issue with Legion Companies; however, the federal district court entered an order on March 18, 2003, staying the federal action until such time as Eagle Star could receive permission from the Illinois and Pennsylvania tribunals to pursue the issue in that venue. On April 9, 2003, following a trial, the Illinois trial court found Legion Indemnity

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1-05-4069 insolvent and removed the company from conservation and entered an order of liquidation. Subsequently, on July 25, 2003, the Commonwealth Court placed Legion Insurance into liquidation. Also, at this time, the Commonwealth Court granted Eagle Star permission to pursue federal litigation despite the anti-suit injunction against the parties. Eagle Star next petitioned the Illinois trial court for permission to pursue its federal action on August 22, 2003. On November, 7, 2003, the trial court denied Eagle Star's request. Citing the jurisdiction granted by the Illinois Insurance Code, the importance to Illinois of having its own courts settle insurance liquidation disputes, and a notice of consent from the Pennsylvania liquidator to the trial court's jurisdiction to resolve the issue, the trial court ruled that it had subject matter jurisdiction over the billing dispute and jurisdiction over all parties. On December 12, 2003, in the Commonwealth Court, Eagle Star sought revocation of the Legion Insurance liquidator's consent. In response, on January 22, 2004, the Commonwealth Court ordered the Legion Insurance liquidator to prepare a "508 Report," in accordance with Section 508 of the Pennsylvania Insurance Code (40 Pa. Cons. Stat. Ann.

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