Opinion ID: 1060083
Heading Depth: 2
Heading Rank: 2

Heading: claim for administrative priority

Text: 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 (Bkrtcy.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.
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.
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.