Liquidator. Only now, when the parties and the Court have invested considerable time and resources
in the litigation, does the Liquidator see fit to object.

Though inexplicable, the Liquidator’s delay is not dispositive. This case is still in discovery
and has not been scheduled for summary judgment or trial. Thus, the delay, though not laudable, is
not, by itself, sufficient justification for denying the motion. Cf Mazanec v, N. Judson-San Pierre
Sch. Corp., 763 F.2d 845, 846-49 (7th Cir. 1985) (reversing district court’s decision to abstain after
case was tried).

Moreover, the decision to abstain should not be animated by the conduct of one government
official but by the principles of comity. In the words of the Supreme Court:

“Few public interests have a higher claim upon the discretion of a federal chancellor

than the avoidance of needless friction with state policies, whether the policy relates

to the enforcement of the criminal law, or the administration of a specialized scheme

for liquidating embarrassed business enterprises, or the final authority ofa state court

to interpret doubtful regulatory laws of the state. These cases reflect a doctrine of

abstention appropriate to our federal system, whereby the federal courts, exercising

awise discretion, restrain their authority because of scrupulous regard for the rightful

independence of the state governments and for the smooth working of the federal

judiciary. This use of equitable powers is a contribution of the courts in furthering the

harmonious relation between state and federal authority without the need of rigorous

congressional restriction of those powers.”
Quackenbush y. Allstate Ins. Co., $17 U.S. 706, 717-718 (1996) (quoting R.R. Comm'n of Tex. v.
Pullman, 312 U.S. 496, 500-501 (1941) (internal quotation marks and citations omitted)). Such
considerations routinely lead judges in this district to abstain from cases involving insolvent
insurance companies. See, e.g., Mondrus v. Mut. Benefit Life Ins. Co., 775 F. Supp. 1155, 1158
(N.D. Ill. 1991) (abstaining from insured’s breach of contract claim against insolvent insurer);
Gerling-Konzern Globale Rueckversicherungs AG v. Selcke, No. 93 C 4439, 1993 WL 443404, at
*2-3 (N.D, IIL. Oct. 29, 1993) (declining to exercise jurisdiction over case brought against insolvent

insurer by reinsurer seeking to compel arbitration of their disputes).

5


Re are assets of the Reliance estate. Though that is not the issue Tribune presents for resolution, it
is an inevitable by-product of a decision on its claims. If the Reliance/Swiss Re agreement isa
reinsurance contract, as Swiss Re contends, the proceeds are an asset of the Reliance estate. See 40
Pa. CONS. STAT. §§ 221.3, 221.20, 221.34. If, as Tribune contends, it is not, then the proceeds
belong to Tribune. Either way, this Court’s characterization of the agreement will impinge on the
liquidation court’s mandate to marshal the assets of the insolvent insurer.

The third factor also favors abstention. The McCarron-Ferguson Act, 15 U.S.C. § 1011, er
seq., vests the states with the primary power to regulate the insurance industry. Pursuant to that
authority, Pennsylvania has devised a detailed set of procedures governing the rehabilitation and
liquidation of insolvent insurers. See 40 PA. CONS, STAT. §§ 221.1-221.63. That statutory scheme
is a clear indication of the State’s intent to be the exclusive arbiter of cases involving insolvent
insurers.

The only Hartford factor that does not militate in favor of abstention is the last one. Though
this case will impact the Reliance liquidation proceedings, it does not require the application of any
unusual or esoteric state laws. Rather, Tribune’s claims implicate ordinary contract and agency
principles that are well within this Court’s grasp.

The factors enumerated by the Hartford court are not exclusive, however, see Hartford, 913
F.2d at 425, and there is another factor in this case that weighs against abstention: the Liquidator’s
conduct. The Liquidator learned about this suit less than one month after it was filed in 2002. (See
Swiss Re’s Mot. Dismiss Failure Join Indispensable Party, Ex. G, Robinson Aff. 44.) Yet, she
declined to take any action in this suit, a display of indifference that greatly informed the Court’s
decision to deny Swiss Re’s motion to dismiss for failure to join her as a party. (See 9/30/03 Mem.
Op. & Order at 9-13.) For nearly two years, this case progressed without any objection from the

4


But the plaintiffs in those cases were suing the insolvent insurer directly. As Tribune points
out, the link to the insurer in this case is more tenuous. The Liquidator is a party only by way of
interpleader and, as we noted in our opinion denying Swiss Re’s motion to dismiss, no decision in this
case will divest Reliance of an existing asset. (See 09/30/03 Mem. Op. & Order at 14.) In Tribune’s
view, those facts are sufficient to defeat the abstention motion.

The Court disagrees. Though Tribune does not seek a judgment against Reliance, resolution
of this suit still has the potential to dissipate the Reliance estate. The practical effect of a
determination that the Reliance/Swiss Re agreement is not a reinsurance contract is to remove the
proceeds of that agreement ftom the Reliance asset pool. As our court of appeals has noted,
decreasing the assets available for distribution to Reliance’s creditors is no less intrusive on the
liquidation process than entering a judgment against the insurer:

One could argue that a federal court action in which the bankrupt insurer is interpled
is less intrusive on the state liquidation proceedings than a direct claim against the
assets of the insurer... . If the court decides in such a case that the [Liquidator] is
not entitled to the fund, it could be said that the interests of the defunct insurer were
never threatened by the federal court action since the insurer was never entitled to the
funds in the first place. In other words, it seems that an interpleader action does not
necessarily impinge upon the liquidation proceeding because it does not involve
taking an existing asset of the insurer. Instead, it offers the [Liquidator] the possibility
of obtaining an asset which is not yet the insurer’s.

We are doubtful that any distinction between existing assets of the insurance
company, over which litigation must be carried out in a state-created liquidation
process, and possible claims of the company to assets in the hands of others, over
which litigation can proceed in any federal district court, can be supported. The
(Liquidator] is empowered to collect as well as distribute assets of the defunct
insurance company. ... The extent to which the Superintendent is able to collect
thus affects the degree to which the insolvent insurer’s estate will have assets
sufficient to satisfy the claims of its creditors.

Gen. Ry. Signal Co. v. Corcoran, 921 F.2d 700, 709 (7th Cir. 1991) (internal quotation marks and

citation omitted).


IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

TRIBUNE COMPANY, a Delaware
Corporation,

Plaintiff,
ve.

SWISS REINSURANCE AMERICA,
CORPORATION, a New York Corporation,

Defendant.

SWISS REINSURANCE AMERICA
CORPORATION, a New York Corporation,

Vv.

TRIBUNE COMPANY, a Delaware
Corporation,

Counter-Defendant,
and
M. DIANE KOKEN, Insurance Commissioner
of the Commonwealth of Pennsylvania as
Liquidator of Reliance Insurance Company

(In Liquidation),

Third-Party Defendant.

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No. 02 C 4772

Judge Ronald A. Guzman

MEMORANDUM OPINION AND ORDER

Reliance Insurance Company contracted with Tribune Company’s predecessor to provide

coverage for certain workers’ compensation claims. Reliance, which is now in liquidation

proceedings in Pennsylvania, has stopped paying on Tribune’s claims. Tribune contends, for a

variety of reasons, that Swiss Reinsurance America Corporation (“Swiss Re”), which is denominated


On balance, the Court is persuaded that abstention is the proper course in this case.
Abstaining will not deprive Tribune of a forum for its state-law claims and will respect the State of
Pennsy!vania’s prerogative to oversee the liquidation of Reliance. Moreover, though its timing is
hardly ideal, the motion does not come so late in the day that the delay alone is justification for its
denial. Accordingly, the Court will abstain from exercising its jurisdiction over this case until the

state liquidation proceedings on Tribune’s claims have concluded.'

Conclusion
For all of the reasons stated above, the Liquidator’s motion to stay or dismiss [doc. no. 55]
is granted. The Court stays this proceeding pending the Pennsylvania state court’s resolution of
Tribune’s claims. The parties are ordered to appear before the Court within thirty days of the
conclusion of the liquidation court’s proceedings on Tribune’s claims, The Liquidator’s motion to

compel arbitration {doc. no. 54] is dismissed as moot.

SO ORDERED ENTERED:
Va for

HON. RONALD A.
United States District Judge

'Given the Court’s resolution of the abstention issue, we need not address the other
arguments raised by the Liquidator.


as Reliance’s reinsurer, is liable for the unpaid claims. It has sued Swiss Re for breach of contract,
declaratory judgment and unjust enrichment. Swiss Re, in turn, has filed an interpleader claim
against Tribune and M. Diane Koken (“the Liquidator”) asking the Court to determine which of those
parties is entitled to the proceeds of the purported reinsurance agreement between Reliance and
Swiss Re.

The case is before the Court on the Liquidator’s motion to dismiss or stay in favor of the
Pennsylvania liquidation proceedings or, in the alternative, to compel arbitration. For the reasons
set forth below, the motion to stay is granted and the motion to compel arbitration is dismissed as

moot.

Discussion

The Liquidator contends that the Court should abstain from exercising its jurisdiction over
this case pursuant to Burford v. Sun Oil Company, 319 U.S. 315 (1943). Burford abstention is
appropriate, the Supreme Court has said, when a federal case presents “difficult questions of state
law bearing on policy problems of substantial public import whose importance transcends the result
in the case at bar” or when “the exercise of federal review of the question in a case . .. would be
disruptive of state efforts to establish a coherent policy with respect to a matter of. substantial public
concern.” New Orleans Pub. Serv., Inc. v. Council of the City of New Orleans, 491 U.S. 350, 361
(1989) (internal quotation marks and citation omitted) (“NOPS/’). In the Liquidator’s view, our
resolution of this case would disrupt the State of Pennsylvania’s scheme for the fair and orderly
liquidation of insolvent insurers. Thus, she says, Burford, and the principles of comity underlying

it, counsel our restraint.


There are two prerequisites to Burford abstention: (1) “the state must offer some forum in
which claims may be litigated; and (2) “[the] forum . . . must stand in a special relationship of
technical oversight or concentrated review to the evaluation of those claims.” Property & Cas. Ins.
Ltd. v. Cent. Nat'l Ins. Co. of Omaha, 936 F.2d 319, 323 (7th Cir. 1991). Both are met in this case.
The Pennsylvania state court, which is vested with the responsibility to oversee Reliance’s
liquidation, see PA. CONS. STAT. § 221.4(d), is available, even eager, to litigate these claims.

The fact that a specialized, state forum exists, however, does not mean that abstention is
appropriate. On the contrary, the Supreme Court has emphasized that abstention is “the exception,
not the rule.” NOPS/, 491 U.S. at 359 (internal quotation marks and citation omitted). To determine
whether this is case falls into that exception, we must consider the following:

First, is the suit based on a cause of action that is exclusively federal? Second, does

the suit require the court to determine issues that are directly relevant to state policy

in the regulation of the insurance industry? Third, do state procedures indicate a

desire to create special state forums to regulate and adjudicate these issues? Fourth,

are difficult or unusual state laws at issue?

Hartford Cas. Ins. Co. v. Borg-Warner Corp., 913 F.2d 419, 425 (7th Cir. 1990). Three of those four
factors favor abstention.

To start, this case revolves around state-law claims. Specifically, Tribune asks the Court to
hold Swiss Re liable under agency and contract principles for the workers’ compensation claims
Reliance agreed to insure. The absence of any federal question weighs in favor of abstention. See
Moses H. Cone Mem'I Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 26 (1983) (“[T]he presence of
federal-law issues must always be a major consideration weighing against [abstention]”).

Secondly, resolution of this suit will require the Court to determine an issue that is directly

relevant to the liquidation proceeding: whether the purported reinsurance proceeds held by Swiss