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NOTICE: This opinion is subject to motions for rehearing under Rule 22 as well as formal revision before publication in the New Hampshire Reports. Readers are requested to notify the Reporter, Supreme Court of New Hampshire, One Charles Doe Drive, Concord, New Hampshire 03301, of any editorial errors in order that corrections may be made before the opinion goes to press. Errors may be reported by E-mail at the following address: reporter@courts.state.nh.us. Opinions are available on the Internet by 9:00 a.m. on the morning of their release. The direct address of the court's home page is: http://www.courts.state.nh.us/supreme. THE SUPREME COURT OF NEW HAMPSHIRE ___________________________ Merrimack No. 2007-794 IN THE MATTER OF THE LIQUIDATION OF THE HOME INSURANCE COMPANY Argued: April 30, 2008 Opinion Issued: July 25, 2008 Orr & Reno, PA, of Concord (Ronald L. Snow and Lisa Snow Wade on the brief) and Morrison & Foerster LLP, of New York, New York (Gary S. Lee & a. on the brief and Kathleen E. Schaaf orally), for the appellant. Kelly A. Ayotte, attorney general (J. Christopher Marshall, attorney, on the brief) and Rackemann, Sawyer & Brewster PC, of Boston, Massachusetts (J. David Leslie and Eric A. Smith on the brief, and Mr. Leslie orally), for the respondent. HICKS, J. The appellant, Century Indemnity Company (CIC), appeals an order of the Superior Court (Conboy, J.) sustaining a referee's ruling denying CIC's asserted setoff of reinsurance claims in the liquidation of The Home Insurance Company (Home). The respondent is Roger A. Sevigny, Commissioner of Insurance of the State of New Hampshire, solely as Liquidator of The Home Insurance Company (the liquidator). We reverse and remand. The following facts are supported by the record. Home is an insurance company organized under the laws of New Hampshire. It was declared insolvent and placed in liquidation by court order in June 2003. CIC is an

insurance company organized under the laws of Pennsylvania. CIC reinsures Home with respect to certain contracts between Home and other insurers. As claims pursuant to these contracts are allowed against Home in liquidation, CIC remits monies to Home pursuant to a claims protocol agreed upon by Home and the liquidator. The claims protocol provides that these payments to Home "shall be net of setoff in compliance with" RSA 402-C:34 (2006) or as otherwise allowed under New Hampshire law. RSA 402-C:34 provides, in pertinent part: I. SETOFFS ALLOWED IN GENERAL. Mutual debts or mutual credits between the insurer and another person in connection with any action or proceeding under this chapter shall be set off and the balance only shall be allowed or paid, except as provided in paragraph II. II. EXCEPTIONS: No setoff shall be allowed in favor of any person where: ... (b) The obligation of the insurer to the person was purchased by or transferred to the person with a view to its being used as a setoff . . . . RSA 402-C:34. CIC also reinsures other insurance companies with which it is affiliated (CIC and such affiliated companies being all directly or indirectly one hundred percent owned by the same parent company) with respect to certain general liability policies issued by them (the Covered Policies) pursuant to an agreement titled "Pre-1987 General Liability Reinsurance Agreement" that took effect on December 31, 1995 (the 1995 agreement). "Reinsurance results when one insurer . . . `cedes' (transfers) part of the risk it underwrites to another insurer . . . ." In re Mission Ins. Co., 48 Cal. Rptr. 2d 209, 211 (Ct. App. 1995). Accordingly, we refer to the affiliated insurance companies reinsured by CIC as the "affiliated cedents." Under the 1995 agreement, CIC agreed "to accept a one hundred percent (100%) quota share participation in the [affiliated cedents'] liabilities relating to Covered Policies" and to reimburse the affiliated cedents for all expenses relating to claims under the covered policies in exchange for, inter alia: (1) payment to CIC "of a sum equal to the net carried reserves . . . of the [affiliated cedents] for liabilities relating to Covered Policies"; and (2) assignment to CIC "of all rights to reinsurance recoverables (and any collateral pertaining thereto) relating to Covered Policies" held by the affiliated cedents. Among the reinsurance claims assigned to CIC in the 1995 agreement are reinsurance

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obligations of Home to the affiliated cedents (the reinsurance recoverables). In other words, Home is a reinsurer of the affiliated cedents with respect to some of the Covered Policies and the affiliated cedents assigned their rights to recover that reinsurance to CIC in the 1995 agreement. Pursuant to the claims protocol, CIC sought to setoff amounts payable by it to Home under the claims protocol against the reinsurance recoverables; that is, claims against Home as reinsurer of the affiliated cedents, assigned by the affiliated cedents to CIC in the 1995 agreement. The liquidator disagreed with the validity of the asserted setoff and the parties jointly requested that the referee deem the matter a disputed claim proceeding to be resolved in accordance with RSA chapter 402-C (2006 & Supp. 2007) and an established claims procedure order. The matter proceeded before the referee, who denied setoff. The trial court sustained that decision, agreeing with the "implicit [conclusion] in the referee's Ruling . . . that under the circumstances of this case, the subject assignment does not establish the mutuality necessary to trigger the statute's setoff mandate." Specifically, the court concluded that because "[t]he terms of the assignment require the return of uncollectible reinsurance at face value to [the affiliated cedents,] . . . the assignment is not absolute." On appeal, CIC argues that the court erred by ignoring the 1995 agreement's plain language, which unconditionally assigned the affiliated cedents' claims to it. To the extent this case presents issues of contract interpretation, we apply the following standard of review: The interpretation of a contract is a question of law, which we review de novo. When interpreting a written agreement, we give the language used by the parties its reasonable meaning, considering the circumstances and the context in which the agreement was negotiated, and reading the document as a whole. Absent ambiguity, the parties' intent will be determined from the plain meaning of the language used in the contract. Czumak v. N.H. Div. of Developmental Servs., 155 N.H. 368, 373 (2007) (citations omitted). As to the issues of statutory interpretation presented, our standard of review is as follows: The interpretation of a statute is a question of law, which we review de novo. We are the final arbiters of the legislature's intent as expressed in the words of the statute considered as a whole. We first examine the language of the statute, and, where possible, ascribe the plain and ordinary meanings to the words used. . . . Our goal is to apply statutes in light of the legislature's intent in

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enacting them, and in light of the policy sought to be advanced by the entire statutory scheme. Cloutier v. City of Berlin, 154 N.H. 13, 17 (2006) (citations omitted). We start with the observation that, according to its plain language, RSA 402-C:34 allows the setoff of "[m]utual debts or mutual credits" unless certain exceptions apply. Id. Although the term mutual is not defined in the statute, it has a known meaning in our common law. We have noted that "[s]et-off is a statutory right . . . in the nature of a cross-action" and explained that "[d]ebts to be set off must be mutual, and to be mutual they must be due to and from the same persons in the same capacity." Dole v. Chattabriga, 82 N.H. 396, 397 (1926) (citations omitted). "Capacity," for these purposes, "means legal capacity (e.g., principal, agent, trustee, beneficiary)." Matter of Midland Ins. Co., 590 N.E.2d 1186, 1192 (N.Y. 1992). The referee and the trial court first noted that the obligations CIC sought to set off against its obligations to Home "run facially from Home to CIC affiliates, and not to CIC." Thus, absent more, setoff of the reinsurance recoverables against CIC's obligations to Home would be a prohibited triangular setoff: "[A] `triangular setoff,' when A attempts to offset an obligation owed to B against B's debt to C, is prohibited because there is no mutuality of debt between two parties." In re U.S. Aeroteam, Inc., 327 B.R. 852, 864 (Bankr. S.D. Ohio 2005). CIC, however, asserts something more; namely, that the assignment of the reinsurance recoverables to it cures the lack of mutuality. The trial court concluded that the assignment did not establish mutuality, finding dispositive a put-back provision in the 1995 agreement that qualifies the assignment of the reinsurance recoverables as follows: "provided, however, that [CIC] shall return to the respective [affiliated cedent] for face value, any such assigned reinsurance recoverables that are deemed by [CIC] to be uncollectible together with the rights to any related collateral." The trial court reasoned: The terms of the assignment require the return of uncollectible reinsurance at face value to [the affiliated cedents]. As the Liquidator notes, "[I]f the reinsurance is not collectible, then the amount of the reinsurance recoverable (its `face value') is returned to the [affiliated cedent], which is then obligated to pay CIC that amount through the quarterly accounting and setoff mechanism provided in the [1995 agreement]." Thus, in this triangular situation, the assignment is not absolute and the real parties in interest are [the affiliated cedents]. The bottom line is that CIC is

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asserting claims of its affiliates, and not its own claims. Under these circumstances, mutuality is lacking. CIC contends that this conclusion "ignores the plain language of the [1995 agreement], which unconditionally assigned the claims of [the affiliated cedents] to CIC." The liquidator, on the other hand, contends that "the express language of [the put-back] proviso to the assignment . . . renders the assignment conditional, and not absolute." Specifically, the liquidator asserts that the "[t]he plain meaning and intent of the proviso is to condition the assignment on the collectibility of the reinsurance," and that CIC is "an assignee for purposes of collection," acting not in its own capacity but as agent or trustee for the affiliated cedents." Accordingly, we examine the distinction between absolute assignments and assignments for collection. Under the first type of assignment, the "creditor/assignor . . . [transfers] his or her claim against a debtor in such a way as to effect a complete sale of the claim." DeBenedictis v. Hagen, 890 P.2d 529, 532 (Wash. Ct. App. 1995). Such "[a]n absolute assignment divests the assignor of all control and right to a cause of action against the original debtor; the assignee is entitled to control and to receive the benefits of the contract between the original debtor and the assignor." Uni-Com Northwest, Ltd. v. Argus Pub. Co., 737 P.2d 304, 308 (Wash. Ct. App.), review denied, 108 Wash. 2d 1032 (Wash. 1987). Such an assignment "can create mutuality for setoff purposes," U.S. Aeroteam, 327 B.R. at 865, as follows: Under principles of contract law, when party A pays B's debt to C and obtains a valid assignment of C's rights against B, party A may now "step into the shoes" of C and assert all rights C had against B. By way of assignment, there are mutual debts now owing between parties A and B. U.S. Aeroteam, 327 B.R. at 864-65 (citation omitted). This is precisely the theory under which CIC claims mutuality. Under the second type of assignment, the "creditor/assignor [assigns] his or her claim against a debtor for purposes of collection." DeBenedictis, 890 P.2d at 532. Such an assignment transfers legal title to the claim, so the assignee can sue in his or her own name[,] . . . [but] leaves equitable ownership with the creditor/assignor. The resultant split in ownership gives rise to a fiduciary relationship between the assignor and assignee, and the relationship generally is one of principal-agent.

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Id. (citations omitted). Thus, an assignee for purposes of collection "has been referred to as the trustee or agent of the assignor." Harrison v. Adams, 128 P.2d 9, 12 (Cal. 1942). The significance of this type of assignment, for our purposes, is that it does not create mutuality between the assignee and the original debtor, and therefore does not permit setoff. Specifically, an assignee for purposes of collection cannot set off his personal debt against the assigned claim because, "[s]ince mutuality is essential, the debtor must be the beneficial owner of the claim or judgment which he seeks to set off and not merely a trustee on behalf of an assignor who has retained the equitable interest in the thing assigned." Norman v. Berney, 45 Cal. Rptr. 467, 474 (Dist. Ct. App. 1965); see also Prudential v. Superior Court (Garamendi), 842 P.2d 48, 53 (Cal. 1992) ("[S]etoff can occur only between persons or entities of equal capacity; debts owed in a fiduciary, agency, trustee, or partnership capacity are not subject to setoff."). To determine whether the assignment is absolute or conditional, we must ascertain the parties' intent. Cf. Centex Constr. v. Acstar Ins. Co., 448 F. Supp. 2d 697, 705 (E.D. Va. 2006). No particular phraseology is required to effect an assignment. The ultimate test is the intention of the assignor to give and the assignee to receive present ownership of the claim. A valid assignment may be made by any words or acts which fairly indicate an intention to make the assignee the owner of a claim. Premier Capital v. Skaltsis, 155 N.H. 110, 115 (2007) (quotations and citations omitted). For an assignment to be absolute, "[t]he assignor must not retain any control over the fund or property assigned, any authority to collect, or any form of revocation." Centex Constr., 448 F. Supp. 2d at 705 (quotation omitted) (applying Virginia law). CIC contends that the "assignment is absolute because there is nothing in the [1995 agreement] that permits the [affiliated cedents] to withdraw it." It asserts that "[t]he assignment cannot be revoked and the [affiliated cedents] retain no rights in the reinsurance." Finally, it argues that "[b]ecause CIC never deemed the reinsurance uncollectible, the claims never reverted to the [affiliated cedents] and mutuality under RSA 402-C:34 was preserved." We agree. We address CIC's final point first. CIC contends that the trial court erred in ruling that the return of uncollectible reinsurance recoverables to the affiliated cedents was required by the terms of the assignment. It argues that this ruling "ignores the contractual predicate for the return of the reinsurance claims

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