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05/18/88 In Re Liquidations of Reserve Insurance Company Et Al.

May 18, 1988

IN RE LIQUIDATIONS OF RESERVE INSURANCE COMPANY ET AL.


SUPREME COURT OF ILLINOIS

(American Re-Insurance et al., Appellants, v.

John E. Washburn, Director of Insurance, et al., Appellees)

524 N.E.2d 538, 122 Ill. 2d 555, 120 Ill. Dec. 508 1988.IL.787

Appeal from the Circuit Court of Cook County, the Hon. David J. Shields, Judge, presiding.

APPELLATE Judges:

CHIEF JUSTICE MORAN delivered the opinion of the court.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE MORAN

In separate proceedings in the circuit court of Cook County, Reserve Insurance Company (Reserve) and Security Casualty Company (Security) are undergoing liquidations pursuant to article XIII of the Illinois Insurance Code (Code) (Ill. Rev. Stat. 1981, ch. 73, par. 799 et seq.). John E. Washburn, Director of Insurance (Director), as the liquidator of Reserve and Security, filed a petition in each of the liquidation proceedings requesting the court to determine that all claims against Reserve and Security as reinsurers are "claims of general creditors" under section 205(1)(d) of the Code (Ill. Rev. Stat. 1981, ch. 73, par. 817(1)(d)). The petitions also requested that the Director be allowed to defer payment of those claims of general creditors until after timely and allowed claims of higher priority under section 205(1) are paid in full. The circuit court consolidated the Reserve and Security liquidation proceedings for the purpose of deciding the Director's petition.

Several insurance companies with claims against Reserve and Security arising out of reinsurance agreements (Reinsureds) were allowed to intervene and filed statements arguing that their claims are entitled to third, rather than fourth, priority under section 205(1)(c) of the Code (Ill. Rev. Stat. 1981, ch. 73, par. 817(1)(c)). The Illinois Insurance Guaranty Fund and the Texas Property and Casualty Guaranty Association also intervened and filed statements in support of the Director's petition.

The circuit court ordered that all claims against Reserve or Security as reinsurers are "claims of general creditors" within the meaning of section 205(1)(d) of the Code. We allowed a direct appeal to be taken to this court under Rule 302(b) (107 Ill. 2d R. 302(b)). Taken along with the case is the Director's motion to strike that portion of the Reinsureds' reply brief which challenges for the first time the constitutionality of certain applications of section 205 of the Code.

The issue presented for review is whether claims arising out of reinsurance agreements between insurance companies are claims of "policyholders, beneficiaries [or] insureds . . . under insurance policies and insurance contracts issued by the [insolvent] company" (Ill. Rev. Stat. 1981, ch. 73, par. 817(1)(c)), or whether they are "claims of general creditors" (Ill. Rev. Stat. 1981, ch. 73, par. 817(1)(d)). The significance of the distinction is, of course, that claims under priority (d) are entitled to payment out of the general assets of the insolvent company only after timely and allowed claims under priority (c) are paid in full. If there are not enough assets to fully satisfy priority (c) claims, then priority (d) claims will receive nothing out of the liquidation proceedings. Finally, we must also rule on the Director's motion to strike a portion of the Reinsureds' reply brief.

This cause is essentially a declaratory action; therefore, the underlying facts are few and undisputed. Reserve and Security are insurance companies which dealt with, among other things, reinsurance. Pursuant to reinsurance agreements, Reserve and Security contracted with other insurance companies to cover claims paid by those reinsureds on policies of direct insurance or reinsurance which the reinsureds had issued to third parties.

Reserve became insolvent and was placed into liquidation by the circuit court of Cook County in 1979. Security also was placed into liquidation by the circuit court of Cook County in 1981. Both of those liquidation proceedings are still pending. Pursuant to section 193 of the Code (Ill. Rev. Stat. 1981, ch. 73, par. 805), the Director acts as the liquidator of both Reserve and Security.

Numerous reinsureds which had not been paid by Reserve and Security under their reinsurance agreements timely filed claims with the Director. Claims also were filed by other creditors of Security and Reserve, including the Illinois Insurance Guaranty Fund and several other State guaranty funds.

The underlying issue in this case is the order in which certain claims shall be paid out of the liquidated general assets of Reserve and Security. Resolution of that issue requires us to interpret section 205 of the Code. In construing statutory provisions, it is axiomatic that the court must ascertain and give effect to the legislative intent (Page v. Hibbard (1987), 119 Ill. 2d 41, 46), and that inquiry appropriately begins with the language of the statute (Metropolitan Life Insurance Co. v. Washburn (1986), 112 Ill. 2d 486, 492). The meaning of a specific statutory provision is derived from an examination of the language and purpose of the legislation as a whole. (Massa v. Department of Registration & Education (1987), 116 Ill. 2d 376, 386.) It is presumed that statutes which relate to one subject are governed by one spirit and a single purpose, and that the legislature intended the enactments to be consistent and harmonious. (People v. Maya (1985), 105 Ill. 2d 281, 286.) Consequently, sections in pari materia should be considered with reference to one another so that both sections may be given harmonious effect. Maya, 105 Ill. 2d at 287.

Section 205 of the Code is the controlling statute and provides in pertinent part:

"(1) The priorities of distribution of general assets from the company's estate ...


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