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May 16, 2014

State must pursue claims against insurer in liquidation in Illinois under the Uniform Insurers Liquidation Act

In Department of Transportation v. American Motorists Insurance Company, the Court of Appeals ruled that if the State intends to pursue a performance-bond issuer for faulty maintenance work on the Mackinac Bridge, it must do so in Illinois where the insurer is in liquidation.  The Court of Appeals ruling was based on Michigan's version of the Uniform Insurers Liquidation Act which requires any claims against a insurer being liquidated in a reciprocal state to be asserted either in the other state's liquidation proceeding or against the ancillary receiver appointed in Michigan, if there is one.  As there was no receiver in Michigan, the State must pursue its claims in Illinois.  The opinion has legal significance in that it demonstrates how to determine that Illinois is a coordinate state.  As a practical matter, the effect of the opinion is likely that the State will have to wait even longer to recover expenses incurred in the mid-2000s.  

The case arose after the State determined that maintenance work on the Bridge in 2002-2003 was defective.  American Motorists Insurance Company had issued a performance bond for the work.  When neither the contractor nor AMICO fixed the problem, the State sued both entities.  The contractor was defunct, leaving AMICO on the hook for any expenses.  A few months before trial, AMICO moved to dismiss the case because its parent corporation was subject to a rehabilitation order in Illinois that required all claims to be asserted in the Illinois court.  The circuit court denied the motion, but the Michigan Court of Appeals granted leave to appeal.  While the appeal was pending, AMICO was subject to liquidation in Illinois.  

The Court of Appeals concluded that Michigan's version of the Uniform Insurers Liquidation Act required Michigan to pursue its claims in the Illinois liquidation proceeding.  Under uniform act, if an insurer is being liquidated in a "reciprocal state," claims may only be asserted in the liquidation proceeding or against an ancillary receiver appointed in Michigan. A reciprocal state is, in effect, any other state that has also adopted the uniform act.  The Court of Appeals applied a statute-by-statute analysis before concluding that Illinois is a reciprocal state.  The court then concluded that because there is no ancillary receiver in Michigan, the State must assert its claims in the Illinois liquidation proceeding.  The Court of Appeals remanded the case to the circuit court to be dismissed without prejudice. 

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