Opinion ID: 758543
Heading Depth: 3
Heading Rank: 1

Heading: Liman v. American Steamship Owners

Text: 32 The recycling arrangement is patterned after a similar device approved by this court in Liman, which involved an identical American Club policy. In Liman, approximately 120 claims were presented by seamen and longshoremen against a bankrupt shipping company. Although the shipping company had sufficient funds to pay the claims, and although there was no reason to doubt that the company would be indemnified eventually by the insurer (net of the deductible), the Government (the bankrupt's chief creditor) opposed payment of the claims as illegal preferences because the estate would be diminished to the extent of the $1000 deductible which would be attributed to each of the claims to be defended. Liman, 299 F.Supp. at 107. 4 The district court in Liman described the financing mechanism adopted to obviate that objection: 33 The Trustee therefore propos[ed] to finance the $1,000 deductible in each case by defending each lawsuit pursuant to an agreement with the claimant to the effect that in the event of recovery or settlement in an amount in excess of $1,000, the estate will pay the full amount of the recovery to the claimant and the claimant will thereupon repay $1,000 to the estate, in exchange for which the claimant will become a general creditor of the estate in the sum of $1,000. 34 Id. at 108. The insurer objected that in order to be indemnified under the policies the estate must show that it actually 'absorbed' the $1,000 deductible. Id. 35 Liman summarized New York law on what constitutes payment under an indemnity policy (an interpretation which we adopted in our per curiam opinion affirming on the district court's opinion): [T]he test in New York is whether the assured has actually in good faith sustained the loss for which reimbursement is sought, and the insurer's obligation to indemnify may not be avoided because of the assured's insolvency. Id. at 109. Thus, an indemnifiable payment entails (i) satisfaction of the claim and (ii) the absorption of some loss thereby by the insured, (iii) both in good faith. See also Ahmed v. American Steamship Mut. Protection & Indem. Ass'n, 640 F.2d 993, 995 (9th Cir.1981) (noting that under New York law an insurer's obligation to pay under an indemnity policy does not arise until after the insured suffers an actual monetary loss); 8 John Alan Appleman & Jean Appleman, Insurance Law and Practice § 4856, at 519 (1981) (hereinafter Appleman) ([I]n an action upon an indemnity policy, not only must a judgment have first been recovered against the insured ... but it must also appear that the insured has suffered an actual monetary loss or damage.). 36 In holding that the deductible financing arrangement amounted to payment under this standard, the Liman court focused on the use of the challenged arrangement only to finance the deductible, the rest of each claim representing a cash loss out of pocket. Liman, 299 F.Supp. at 109-10. The court reasoned that: (i) the purpose of the deductible is to enable the insurer to avoid responsibility for small claims which are usually both numerous and costly and this purpose was not undermined by the arrangement; (ii) the source of the funds for paying the deductible is of no concern to the insurer because the insurer is not required to reimburse the policyholder for the deductible; (iii) other than the financing of the deductible, the Trustee would satisfy each judgment against the estate and actually pay out of the estate to the claimant all funds for which reimbursement will be sought from defendant, id. at 110; and (iv) given these factors, a failure to find that the insured had paid the claims would permit the insurer to reap a windfall and to take advantage of the financial status of its insured and deprive the ultimate beneficiary claimant of his judgment, id. at 109. Thus the court found that the purpose of the deductible in that case would be served, and that the Trustee would be seeking reimbursement only for losses actually sustained by the estate. Id. The court distinguished cases in which recovery on an indemnity policy was denied because in such cases there was neither a bona fide settlement of judgment obtained by the claimant against the assured nor a payment made by the assured of the amount for which reimbursement was claimed. Id. at 110. 37 Here, Prudential seeks to use the recycling arrangement to finance the whole of the claims, not the deductibles alone. This case thus differs from Liman in the essential respect that indemnity is sought for a loss that the policyholder has not incurred. See Ahmed v. American Steamship Owners Mut. Protection & Indem. Ass'n, 444 F.Supp. 569, 572 (N.D.Cal.1978) (distinguishing Liman by noting that the insured has never paid any of the claims against it or arranged to finance such payments), aff'd in part, remanded in part, 640 F.2d 993, 995 (9th Cir.1981).