Opinion
No. CV02 39 28 15 S
October 10, 2003
MEMORANDUM OF DECISION RE MOTION FOR ADVICE
I. Background
Through a motion for advice, the defendants in this action have requested a court ruling on the propriety of a foreign court order that stays civil actions in Connecticut.
In December 2001 the plaintiff brought an action to recover damages for injuries allegedly sustained as a result of exposure to toxic fumes. Dana Komjathy v. 146 Kings Highway et al. (Docket Number CV-02-0388830-S). Therein she filed an eight-count complaint against a building owner and painting contractor. The fourth, sixth and eighth counts of the complaint contain allegations involving the defendant Leon P. Gerard d.b.a. Gerard Painting and Wallpapering (Gerard). In May 2002 the plaintiff filed the instant seven-count complaint arising from the same underlying facts but against different defendants. At plaintiff's request, in April 2003 the trial court consolidated these matters.
At the time of the alleged incident the Pawtucket Mutual Insurance Company (Pawtucket) insured Gerard. Due to Pawtucket's financial difficulties, in May 9, 2003 the State of Rhode Island placed the company under a rehabilitator. Gerard, through Pawtucket, filed a notice of the stay of proceedings with this court. On August 4, 2003 a Rhode Island court extended that stay for ninety days.
The defendants in this action filed a Motion for Advice wherein they presented the following questions:
1. Is the Court enforcing the stay ordered by the Rhode Island Court?
2. Will the stay apply to the entire action (and all defendants) or only to the defendant, Gerard (who is also a cross-claim defendant in this action)[?]
3. If the stay is being enforced by this Court, should no further action be taken in both this lawsuit and the consolidated case of Dana Komjathy v. 146 Kings Highway LLC et al. (Docket No. CV-02-0388830-S) of the above-captioned matters, a case in which Gerard is not a party, but which has been consolidated herein?
The plaintiff objects to the stay of proceedings, arguing that the Rhode Island notice "should have no legally demonstrable effect on the current proceedings."
II. Applicable Law
Pursuant to Connecticut Practice Book Section 14-1, Pawtucket filed Notice of Stay of Proceedings, advising this court of orders issued by the Rhode Island Superior Court. That practice book provision states:
When a claim for a statutory exemption or stay by reason of bankruptcy is filed, it shall be accompanied by an affidavit setting forth the date the bankruptcy petition was filed, the district of the bankruptcy court in which it was filed and the address, the name of the bankruptcy debtor and the number of the bankruptcy case.
The plaintiff correctly notes that this rule on its face applies to bankruptcies, not insurance rehabilitation. Nevertheless, the defendant's Motion for Advice is an appropriate vehicle through which to determine the merits of the defendant's request for relief.
The provisions of the Model Insurer's Rehabilitation and Liquidation Act, Connecticut General Statutes Section 38-903 et seq., (Model Act) govern the defendant's motion. The purpose of that interstate compact "is the protection of the interests of insiders, claimants, creditors and the public generally, with minimum interference with the normal prerogatives of the owners and managers of insurers, through: . . . (5) [r]educing the problems of interstate rehabilitation and liquidation by facilitating cooperation between states in delinquency proceedings and by extending the scope of personal jurisdiction over debtors of the insurer outside this state . . ." The Model Act applies to all insurers who have resident insured in Connecticut. Thus it applies to Pawtucket.
The fact that the rehabilitation process began in Rhode Island is irrelevant. Pursuant to Connecticut General Statutes 38a-917(a),
Any court in this state before which any action or proceeding in which the insurer is a party or is obligated to defend a party is pending when a rehabilitation order against the insurer is entered shall stay the action or proceeding for ninety days and such additional time as is necessary for the rehabilitator to obtain proper representation and prepare for further proceedings. The rehabilitator shall take such action respecting the pending litigation as he deems necessary in the interests of justice and for the protection of creditors, policyholders and the public. The rehabilitator shall immediately consider all litigation pending outside this state and shall petition the courts having jurisdiction over that litigation for stays whenever necessary to protect the estate of the insurer.
That section further provides:
(c) The liquidator shall not be obligated to defend any action against the insurer or insured and may enforce injunctions, stays and the claims procedure set forth in sections 38a-903 to 38a-961, inclusive. The liquidator may elect to defend any actions against the insurer or insureds if it is in the best interest of the estate. Any insureds not defended by a guaranty association shall provide their own defense, and include the cost of the defense as part of their claims, if the defense was an obligation of the insurer. The rights of the liquidator to contest coverage on a particular claim shall be deemed preserved without the necessity for an express reservation of rights.
Rhode Island, one of the states bound by the provisions of the Model Act, has reciprocal provisions.
Rhode Island General Statutes § 27-14.3-19 provides in part:
(a) Any court in this state before which any action or proceeding in which the insurer is a party, or is obligated to defend a party, is pending when a rehabilitative order against the insurer is entered shall stay the action or proceeding for ninety (90) days and any additional time as is necessary for the rehabilitator to obtain proper representation and prepare for further proceedings. The rehabilitator shall take any action respecting the pending litigation as he or she deems necessary in the interests of justice and for the protection of creditors, policyholders, and the public. The rehabilitator shall immediately consider all litigation pending outside of this state and shall petition the courts having jurisdiction over that litigation for injunctions and stays whenever necessary to protect the estate of the insurer.
Although a simple contract or tort action involving an insolvent insurer might not, at first blush, appear to be a matter of state interest, the regulation of an insolvent insurer is an important concern. Consequently, in the area of insurance rehabilitation, states recognize the doctrine of comity, "not a binding obligation on the forum state, but a courtesy voluntarily extended to another state for reasons of practice, convenience and expediency." Aly v. E.S. Sutton Realty, 360 N.J. Super. 214, 221-22, 822 A.2d 615 (2003) (internal citations omitted; internal quotations omitted).
Because of the critical regulatory interests involved, an insurance rehabilitation law generally preempts other judicial or administrative proceedings. "It protects policyholders because it preserves the assets of the insolvent insurer's estate, thereby enhancing the ability of an insolvent insurance company to perform its contractual obligations." Davister Corporation v. United Republic Life Insurance Company et al., 152 F.3d 1277, 1280 (10th Cir. 1998).
The Rhode Island court that supervises the rehabilitation proceedings needs comprehensive jurisdiction in order to accomplish its mission. Morgan Stanley Mortgage v. Insurance Commissioner of California, 18 F.3d 790, 794 (9th Cir. 1994). Interstate cooperation "contributes markedly to the orderly liquidation or rehabilitation of the insurance company and the adjudication of claims against it . . . Consolidation also eliminates the risk of conflicting rulings, piecemeal litigation of claims, and unequal treatment of claimants, all of which are of particular interest to insurance companies and policyholders, who are often relying on policies with the same or similar provisions." (Internal citations omitted; internal quotations omitted) Munich American Reinsurance Co. v. Crawford, 141 F.3d 585, 593 (5th Cir. 1998).
This court recognizes that there are competing interests. The insurance company wants an orderly rehabilitation. If the stay is not enforced, all of Pawtucket's insured "will be left to defend lawsuits here without counsel provided by the insurer and will be left to answer individually from their own assets for any judgments as may be entered . . . [F]ailure to honor the stay for rehabilitation would potentially result in a chaotic rush on the assets of an insurer just at the time that the Rehabilitator is trying to grapple with understanding the complete financial picture of the company." Aly v. E.S. Sutton Realty, 360 N.J. Super. at 222-23 (internal citations omitted; internal quotations omitted).
On the other hand courts generally cannot enjoin non-parties. The present action "is not directly against the troubled insurer, but against its insured under a liability policy. The insurer's assets are not directly at risk; preferences are not an issue; and the case for enforcing a [foreign] court's stay of [local] litigation is a good deal less compelling than it might be in a direct action against the insurer." Smigielski v. Brookwood School, No. 02-209, 16 Mass. L. Rptr. 125 (Massachusetts Superior Court, Essex, April 16, 2003) (internal quotations and citations omitted).
In balance, giving deference to a rehabilitation effort, this court should recognize the need for a stay during judicial or administrative proceedings. None of the parties have offered any reason to ignore the Rhode Island order. Should their circumstances change, relief is available both here and in Rhode Island Although the case for deferring to the foreign stay becomes progressively weaker with each passing month, that issue is not before the court at the present time. This court will not presume a hardship where none has been alleged.
Rhode Island itself does not permit indefinite appeals. See Harvard Pilgrim Health Care of New England Inc. in Liquidation v. Rossi, 98-4168 (2002) (stay disallowed during tax appeal).
In response to the specific questions presented:
1. This court will enforce the stay ordered by the Rhode Island court.
2. The stay applies to the entire action (and all defendants).
3. In light of the plaintiff's successful consolidation, the stay is being enforced in both this lawsuit and the consolidated case of Dana Komjathy v. 146 Kings Highway LLC et al. (Docket No. CV-02-0388830-S).
So Ordered.
DEWEY, J.