Present: All the Justices 

SWISS RE LIFE COMPANY AMERICA, ETC. 

OPINION BY JUSTICE LAWRENCE L. KOONTZ, JR. 

v. Record No. 961078 JANUARY 10, 1997 

ALFRED W. GROSS, ETC., ET AL. 

FROM THE STATE CORPORATION COMMISSION 

 In this appeal from the State Corporation Commission 

(Commission), the primary issue we consider is whether Code 

§ 38.2-1509 permits a reinsurer for an insurance company in 

receivership to obtain administrative priority over other 

creditors in recovering amounts owed it under an ongoing treaty 

of reinsurance with the insolvent company. The reinsurer also 

raises additional issues related to its claim against the 

insolvent insurer. For the reasons that follow, we will affirm 

the decision of the Commission. 

 I. BACKGROUND 

 On December 28, 1990, Fidelity Bankers Life Insurance 

Company (Fidelity) sold a portion of its traditional life 

insurance business to Protective Life Insurance Company 

(Protective). As a condition of the purchase, Protective 

required Fidelity to provide Protective with an independent 

guarantee against potential losses from excess mortality claims 

among insureds under the policies Protective would acquire in the 

transaction. 

 To satisfy this requirement, Fidelity, Protective, and North 

American Reassurance Company, now known as Swiss Re Life Company 

America (Swiss Re), entered into reciprocal treaties of 
reinsurance, sometimes referred to as "stop-loss" agreements. 

Under the terms of its treaty of reinsurance with Protective (the 

Protective treaty), Swiss Re agreed to indemnify Protective for 

any payments above levels established in agreed-upon mortality 

schedules for the policies Protective acquired from Fidelity. In 

the treaty of reinsurance between Swiss Re and Fidelity (the 

Fidelity treaty), Fidelity agreed to indemnify Swiss Re for any 

payments Swiss Re made to Protective under the Protective treaty. 

 Both agreements contained provisions for interest to accrue on 

amounts owed on claims under the agreements. In return for 

fulfilling its duties under the treaties of reinsurance, Swiss Re 

would receive a fee of approximately $40,000 per year. 

 On May 13, 1991, Fidelity went into receivership by order of 

the Circuit Court of the City of Richmond, which appointed the 

Commission as receiver, pursuant to Code § 38.2-1505. On that 

same day, the Commission appointed the Commissioner of Insurance 

as deputy receiver of Fidelity, pursuant to Code § 38.2-1510. 

 Subsequently, Protective made demand under its treaty with 

Swiss Re for excess mortality losses for calendar year 1991 in 

the amount of $1,134,923. Swiss Re satisfied this demand, which 

included a small amount of interest, and ultimately filed a claim 

for that sum with the deputy receiver. Swiss Re sought 

administrative priority for that sum, due it under the Fidelity 

treaty, as an administrative expense under Code § 38.2-1509. 

Swiss Re also sought interest on this debt. 

 The deputy receiver, while acknowledging the claim against 

the receivership estate, classified Swiss Re as an unsecured 
creditor of Fidelity, denied its claim for administrative 

priority, and disallowed its claim for interest. Thereafter, the 

deputy receiver disavowed further obligations under the Fidelity 

treaty as an executory contract, pursuant to the Commission's 

order granting the deputy receiver the authority to "affirm or 

disavow any contracts to which [Fidelity] is a party." The 

parties do not dispute the propriety of this grant of authority 

by the Commission to the deputy receiver. 

 In July 1991, Swiss Re acquired from Integrated Resources 

Life Insurance Company (Integrated) various reinsurance treaties 

(the Integrated treaties) including some polices for which 

Fidelity was the indemnified party. Swiss Re held additional 

reinsurance treaties for which Fidelity was the indemnified party 

(the non-Integrated treaties) predating the Fidelity and 

Protective treaties. As a result, Swiss Re became both a debtor 

and a creditor of Fidelity. Consequently, Swiss Re attempted to 

set off payments it owed to Fidelity under these treaties by the 

amount Fidelity owed to it as a result of the payments Swiss Re 

made to Protective. The deputy receiver disallowed this 

practice, citing a lack of mutuality of the debts and credits as 

required under Code § 38.2-1515 and as a matter of public policy. 

 In a petition for review, Swiss Re appealed these 

determinations to the deputy receiver. It asserted that the 

disavowal of the Fidelity treaty with the Protective treaty 

remaining in effect was not appropriate because these agreements 

were part of one contract, and that it had entered into them only 

as a pass-through agent, assuming no risk of Fidelity's 
insolvency. In the alternative, Swiss Re asserted that, 

notwithstanding Fidelity's future obligation to pay sums which 

might come due, the Fidelity treaty was not an executory contract 

in that its overall purpose, the provision of a reinsurance 

guarantee, had already been performed. 

 Upon review of Swiss Re's appeal, the deputy receiver 

retracted his disavowal of the Fidelity treaty, stating that it 

would be "treated as [if] it was never disavowed, and . . . the 

status quo ante is restored." The deputy receiver left 

undisturbed the remainder of his prior determinations. Swiss Re 

then pursued an appeal before the Commission.*

 In its petition to the Commission for review of the appeal 

to the deputy receiver, Swiss Re asserted that the Fidelity 

treaty was an executory contract and that the deputy receiver's 

retraction of his disavowal of the Fidelity treaty was a de facto

assumption of it. Consequently, Swiss Re contended that it was 

entitled to priority in the distribution of the assets of 

Fidelity's receivership estate on the ground that the obligations 

of an assumed contract were expenses of administration as 

provided by Code § 38.2-1509. Swiss Re further asserted that it 

was entitled to the interest provided for under the Fidelity 

treaty as an expense of administration on the ground that the 

interest called for was not in the form of a default penalty, but 

 

 *During the pendency of its appeal before the Commission, 

Swiss Re continued to pursue new claims and related matters 

arising out of the Fidelity treaty before the deputy receiver. 

The Commission consolidated Swiss Re's appeal of unfavorable 

decisions on these matters with the prior appeal. 
served to compensate Swiss Re for the time value of the funds it 

had paid to Protective. Swiss Re also challenged the denial of a 

set off for its debts to Fidelity under the other treaties. 

 In this petition to the Commission and in subsequent 

pleadings, Swiss Re asserted the need for an evidentiary hearing 

by the Commission. The Commission, after determining that there 

were no material issues of fact in dispute, considered the appeal 

on the record and issued its decision without conducting a 

hearing. During the 21-day period after entry of the final order 

during which the Commission retained jurisdiction over the 

matter, Swiss Re made no objection to the failure to conduct a 

hearing. 

 In its final order, the Commission denied Swiss Re's claim 

for priority, citing Code § 38.2-1509, and its claim for set off 

of the debts it owed Fidelity under the Integrated treaties, 

finding that there was a lack of mutuality. The Commission 

reversed the deputy receiver's denial of a set off for the nonIntegrated treaties, finding that there was adequate mutuality 

and no violation of public policy. Lastly, the Commission 

rejected Swiss Re's claim for interest on the amounts due under 

the Fidelity treaty on the ground that, even if the interest was 

commercially reasonable, the policy against payment of interest 

on claims against an insurer in receivership prevailed. Swiss Re 

then filed a petition for an appeal of right before this Court. 

II. STANDARD OF REVIEW 

 Our review is guided by well established principles. On 

appeal, the findings of the Commission are presumed to be just, 
reasonable, and correct. Bralley-Willett v. Holtzman Oil, 216 

Va. 888, 890-91, 223 S.E.2d 892, 895 (1976). The decisions 

rendered by the Commission "must be ascribed the respect due to 

the judgments of a 'tribunal appointed by law and informed by 

experience.'" Chesapeake & Potomac Telephone Co. v. 

Commonwealth, 147 Va. 43, 58, 136 S.E. 575, 579 (1927)(quoting 

Illinois Central Railroad Co. v. Interstate Commerce Commission, 

206 U.S. 441, 454 (1907)). Accordingly, a presumption of 

correctness attaches to actions of the Commission, Farmers & 

Merchants National Bank v. Commonwealth, 213 Va. 401, 404, 192 

S.E.2d 744, 747 (1972), and its orders will not be disturbed when 

they are based upon the application of correct principles of law. 

Commonwealth v. Washington Gas Light Co., 221 Va. 315, 325, 269 

S.E.2d 820, 826 (1980). 

III. DISCUSSION 

A. DENIAL OF EVIDENTIARY HEARING: DUE PROCESS 

 Swiss Re asserts on appeal that the failure of the 

Commission to conduct an evidentiary hearing violated its due 

process right to present evidence and be heard in a timely 

fashion. We recognize that "[p]rocedural due process . . . is a 

constitutional right which applies to . . . adjudicative or 

quasi-judicial proceedings." County of Fairfax v. Southern Iron 

Works, Inc., 242 Va. 435, 444, 410 S.E.2d 674, 679 (1991). 

However, although Swiss Re indicated that it wanted to present 

facts in a hearing, the constitutional due process claim was not 

raised below. Accordingly, we will not consider this issue for 

the first time on appeal. Rule 5:25. 
B. CLAIM FOR ADMINISTRATIVE PRIORITY 

1. Retraction of Disavowal as Assumption of Fidelity Treaty

 Swiss Re asserts that the deputy receiver's retraction of 

his prior disavowal of the Fidelity treaty constituted an 

assumption of the contract. As such, Swiss Re contends that this 

step gave rise to an irrebuttable presumption that the deputy 

receiver recognized the Fidelity treaty as beneficial to the 

receivership estate, that an actual benefit was conferred on that 

estate, and that the obligations incurred under the Fidelity 

treaty are therefore expenses of administration entitled to 

priority under Code § 38.2-1509. We need only address this issue 

to the extent that it bears upon Swiss Re's ultimate contention 

that it is entitled to administrative priority. Clearly, without 

an assumption of the Fidelity treaty, Swiss Re was an unsecured 

creditor of Fidelity. 

 Swiss Re asserts that the Fidelity treaty was an executory 

contract, and, thus, once disavowed, any resumption of the 

contract would necessarily constitute an assumption of Fidelity's 

rights and obligations under the contract. In support of its 

position, Swiss Re relies upon authority in bankruptcy law that 

an assumption need not be express, so long as the intent of the 

debtor-in-possession is clear. See, e.g., In re A.H. Robins Co, 

68 B.R. 705, 708 (E.D. Va. 1986). However, Swiss Re properly 

notes on brief that "[g]eneral principles of bankruptcy law [are] 

not technically applicable in state insurance company 

receivership proceedings" and we will not address that matter 

here. 
 Rather, we will assume that the Fidelity treaty was an 

executory contract. We agree with Swiss Re that, under the 

authority granted to the deputy receiver by the Commission's 

order, the Fidelity treaty was subject to assumption by the 

deputy receiver. We fail to see, however, how the deputy 

receiver's election, at Swiss Re's behest, to retract his prior 

decision and treat the Fidelity treaty "as [if] it was never 

disavowed" and to restore "the status quo ante" evinces an intent 

to assume the contract. To the contrary, the clear intent as 

expressed by the language in the deputy receiver's decision was 

to make his prior act a nullity and to restore Swiss Re to its 

original position. In that position, Swiss Re was an unsecured 

creditor of Fidelity for both prior and succeeding claims under 

the Fidelity treaty. 

2. Equitable Claim for Priority

 Swiss Re further asserts that even if it is not entitled to 

administrative priority for the amounts owed it under the 

Fidelity treaty as an expense of administration, equity requires 

that it be given priority over all other creditors of the 

Fidelity receivership estate. Swiss Re asserts that it was 

"gulled" by Fidelity to enter into the Fidelity and Protective 

treaties as a "favor," and that Fidelity deliberately misled 

Swiss Re as to Fidelity's solvency. 

 This assertion is belied by the undisputed facts of the 

case. Swiss Re is a company experienced in the practice of 

issuing and administering treaties of reinsurance. Nothing in 

the record suggests that Swiss Re's agreements with Fidelity and 
Protective were not arm's length transactions by sophisticated 

parties of equal position. Nor was Swiss Re prevented from 

making inquiries into the financial condition of Fidelity. 

Protective's obvious concerns with respect to Fidelity's position 

expressed during the negotiations were sufficient to place Swiss 

Re reasonably on notice as to the potential for difficulties in 

the future. Under such circumstances, equity cannot be invoked 

to permit a party to avoid the consequences of what became an 

ill-advised transaction. See Curtis v. Lee Land Trust, 235 Va. 

491, 498, 369 S.E.2d 853, 857 (1988). Such is particularly the 

case here where an unsecured party seeks a priority over the 

claims of policyholders of an insolvent insurance company. 

3. Application of Code § 38.2-1509

 Code § 38.2-1509(B), as in effect in 1991, controls the 

manner in which the Commission will pay claims out of the estate 

of the insolvent insurer. In pertinent part, the statute read: 

 The Commission shall disburse the assets of an 

insolvent insurer as they become available in the 

following manner: 

 1. Pay, after reserving for the payment of the 

costs and expenses of administration, according to the 

following priorities: (i) wages entitled to priority as 

provided in § 38.2-1514, (ii) claims of secured 

creditors with a perfected security interest not 

voidable under § 38.2-1513 to the extent of the value 

of their security, (iii) taxes owed to the United 

States and other debts owed to any person, including 

the United States, who by the laws of the United States 

are entitled to priority, (iv) claims of the 

associations for "covered claims" as defined in 

§ 38.2-1603 and claims of other policyholders 

apportioned without preference, and (v) other creditors 

. . . . 

 Because we find no merit in Swiss Re's claims for 
administrative priority for the amounts owed to it under the 

Fidelity treaty, Code § 38.2-1509 provides the sole vehicle for 

Swiss Re to recover. As an unsecured creditor, Swiss Re's 

priority falls within that class of creditors addressed in the 

statute, and its claim is to be satisfied accordingly. 

A. CLAIM FOR INTEREST 

 Swiss Re asserts that it is entitled to interest on the 

amounts owed it under the Fidelity treaty based upon the 

provision for interest in the treaty itself. Virginia law 

prohibits creditors of an insolvent estate from earning interest 

on their claims. Metompkin Bank & Trust Co. v. Bronson, 172 Va. 

494, 500, 2 S.E.2d 323, 325 (1939). Accordingly, the claim is 

without merit. 

D. CLAIM FOR SET OFF 

 Swiss Re asserts that the Commission erred in not permitting 

it to set off sums owed by it to Fidelity under the Integrated 

treaties against the sums owed to it under the Fidelity treaty. 

Set off of mutual debts and credits of insurers in receivership 

is controlled by Code § 38.2-1515(A): 

 In all cases of mutual debts or mutual credits 

between the insurer and another person in connection 

with any action or proceeding under this chapter, the 

credits and debts shall be set off and the balance only 

shall be allowed or paid, except as provided in 

subsection B of this section. 

 The rationale underlying the principle of a set off is that 

"'[t]he demands must be due between the same parties, and in the 

same right.'" First National Bank of Waynesboro v. Johnson, 183 

Va. 227, 237, 31 S.E.2d 581, 585 (1944). At the time Swiss Re 
acquired the Integrated treaties, Fidelity was already in 

receivership. Any rights acquired by Swiss Re at that time were 

necessarily limited by the effect of that receivership, and, 

thus, were of a quality distinguishable from the obligations it 

owed under the Fidelity treaty. Accordingly, there is a lack of 

mutuality between the Fidelity treaty and the Integrated 

treaties, barring set off of the respective debts owed. A 

contrary holding would run counter to the express provision in 

the statute that debts owed by the insurer cannot be acquired for 

the purpose of obtaining a set off. Code § 38.2-1515(B)(2). 

 For these reasons, the decision of the Commission will be 

affirmed. 

Affirmed.