Opinion ID: 2691002
Heading Depth: 2
Heading Rank: 1

Heading: The Ohio Liquidation Act

Text: {¶ 10} The Insurers Supervision, Rehabilitation, and Liquidation Act (the “Liquidation Act”), codified in R.C. Chapter 3903, “confer[s] upon the Superintendent and a trial court broad discretionary and equitable powers relating to the supervision, rehabilitation and liquidation of insurance companies.” Fabe v. Prompt Fin., Inc. (1994), 69 Ohio St.3d 268, 273, 631 N.E.2d 614. Through the Liquidation Act, the General Assembly established “a comprehensive framework governing the liquidation of insurance companies operating in Ohio,” Hudson v. Petrosurance, Inc., 127 Ohio St.3d 54, 2010-Ohio-4505, 936 N.E.2d 481, ¶ 16, through which the liquidator is empowered “to protect the rights of insureds, policyholders, creditors, and the public generally.” Fabe, 69 Ohio St.3d at 275. R.C. 3903.02(D). We must liberally construe the Liquidation Act to effectuate that purpose. R.C. 3903.02(C). {¶ 11} The Liquidation Act grants the superintendent three levels of oversight of the insurance industry apart from her usual regulatory powers. First, R.C. 3903.09 confers on the superintendent power to identify and supervise a potentially troubled insurer by requiring it to get her permission before engaging in certain business transactions, such as disposing of assets or investing funds. Second, R.C. 3903.12 grants the superintendent the power, with the court’s permission, to attempt to rehabilitate an insurer in such a poor financial condition that its further transaction of business would be financially hazardous to its policyholders, creditors, or the public. Third, R.C. 3903.16(A) and 3903.17 grant the superintendent the power, with the court’s permission, to liquidate an insurer if, for example, it is insolvent. When the superintendent believes that an 5 SUPREME COURT OF OHIO insurance company is insolvent, she may file a complaint for liquidation. R.C. 3903.17(B). When issued, a final order for liquidation appoints the superintendent as liquidator and directs her to use her broad, statutory powers to marshal assets of the insolvent insurer in the liquidation court and to administer the assets under the general supervision of that court. R.C. 3903.18(A). To that end, the liquidator maximizes the insolvent insurer’s estate; she then reviews, prioritizes, and pays claims to the extent possible. Benjamin v. Pipoly, 155 Ohio App.3d 171, 2003-Ohio-5666, 800 N.E.2d 50, ¶ 28; R.C. 3903.42. {¶ 12} R.C. 3903.21 contains a nonexclusive list of the powers given to the liquidator to accomplish these tasks. Among other things, she may “[c]onduct public and private sales of the property of the insurer,” R.C. 3903.21(A)(7); “[e]nter into such contracts as are necessary to carry out the order to liquidate, and    affirm or disavow any contracts to which the insurer is a party,” R.C. 3903.21(A)(11); and sell, encumber, or otherwise dispose of the insurer’s property, R.C. 3903.21(A)(9). In addition to 23 enumerated powers set forth in the act, the liquidator has authority to do whatever is “necessary or appropriate for the accomplishment of or in aid of the purpose of liquidation.” R.C. 3903.21(B). Indeed, as other courts recognize, this statutory scheme is “abounding in features designed to vest within the liquidator broad and largely unfettered powers, under the supervision of the courts, to maximize the assets available to her in discharging her duties to claimants, shareholders, and creditors of the insolvent insurance company.” Pipoly at ¶ 28. {¶ 13} In contrast to the liquidator’s broad powers, creditors have limited rights to file claims against the insurer’s estate. R.C. 3903.24(A) and 3903.35 through 3903.44. With the issuance of a liquidation order, claims of creditors against the insolvent insurer are extinguished by operation of law and replaced by a right to seek redress in the liquidation court. Id. Those claims must be filed by a date specified by the liquidator, regardless of the underlying statute of 6 January Term, 2011 limitations that would have applied if the claimant had sued the insurer in ordinary litigation. R.C. 3903.22(B) and 3903.36. {¶ 14} Subject to judicial review, the liquidator investigates, values, and approves or denies claims filed against the estate. See, e.g., Covington v. Am. Chambers Life Ins. Co., 150 Ohio App.3d 119, 2002-Ohio-6165, 779 N.E.2d 833, ¶ 26. She then sorts the payable claims according to nine statutory classes. R.C. 3903.42(A) through (I). The Liquidation Act establishes priority among the classes and prescribes that each claimant of the first class be paid in full before the claimants of the second class are paid at all, and so on. R.C. 3903.42. Finally, the statutory scheme provides for setoff when the estate has a cause of action against a claimant. R.C. 3903.30. {¶ 15} The General Assembly designed the Liquidation Act to be centralized in order to enhance efficiency. R.C. 3903.02(D)(3). The general rule is that all liquidation actions brought pursuant to R.C. 3903.01 to 3903.59 “shall be brought in the court of common pleas of Franklin county” (the “liquidation court”). R.C. 3903.04(E). While the Liquidation Act itself contains a reiteration that the liquidation court has jurisdiction over preference claims, R.C. 3903.28(G), and liquidation complaints, R.C. 3903.04(B), elsewhere it sets forth limited exceptions under which the liquidator may select a forum other than the liquidation court. R.C. 3903.21(A)(6) (establishing that as part of her power to collect debts of the insolvent insurer, the liquidator may “[i]nstitute timely action in other jurisdictions”), R.C. 3903.21(A)(12) (establishing that the liquidator has the power to “[c]ontinue to prosecute and to commence    any and all suits and other legal proceedings, in this state or elsewhere”), and R.C. 3903.41(A)(2) (establishing that the court has the power to put the question of a security’s value to arbitration). {¶ 16} The liquidator’s power of forum selection stands in sharp contrast to the creditors’ limited right to file suits in the liquidation court only. R.C. 7 SUPREME COURT OF OHIO 3903.24(A) (establishing that upon the issuance of a liquidation order, “no civil action shall be commenced against the insurer or liquidator, whether in this state or elsewhere, nor shall any such existing actions be maintained or further prosecuted”). In short, when allowed, forum selection belongs to the liquidator and the liquidator alone. {¶ 17} Here, E&Y seeks to remove the entire action filed by the liquidator in the liquidation court to arbitration. We turn our discussion to the arbitration law, which E&Y relies upon in support of its position.