The opinion of the court was delivered by: GAGLIARDI
This consolidation of two federal statutory interpleader actions raises a novel issue of insurance law. The plaintiff-stakeholders are reinsurance companies and underwriters who entered into reinsurance treaties several years ago with a presently insolvent casualty insurer. These treaties obligate plaintiffs, Skandia America Reinsurance Corporation ("Skandia"), General Reinsurance Corporation ("General Reinsurance"), and Peter Frank Tiarks and Francis Everett Brander, Lead Underwriters for Lloyd's of London ("Lloyd's"), to indemnify the insurer for liability on the policies it issued in excess of specified amounts of retained risk. Each treaty contains an "insolvency clause," which provides that in the event of the insurer's insolvency, the reinsurance proceeds which come due are payable to its "liquidator, receiver or statutory successor." Defendant Benjamin R. Schenck, Superintendent of Insurance of the State of New York ("Superintendent"),
and the New Jersey Property-Liability Insurance Guaranty Association ("Guaranty"), each claiming to be the insolvent's statutory successor and, as such, entitled to the proceeds, have cross-moved for summary judgment pursuant to Rule 56, Fed. R. Civ. P.
For the reasons which follow, the Superintendent's motion is granted and Guaranty's motion is denied. In addition, plaintiffs have moved to recover their attorneys' fees and disbursements.
The material facts, by virtue of a stipulation thereto on behalf of all the parties, are not in dispute. Prior to its insolvency, the Professional Insurance Company of New York ("Professional") was a casualty insurance company domiciled in New York and licensed to do business in numerous states, including New Jersey. Professional insured medical malpractice risks and, to limit its exposure on the policies it issued, entered into reinsurance treaties with the plaintiffs. These treaties, which took the form of "excess of loss" agreements, required plaintiffs to indemnify Professional for the excess of specified amounts of retained risk. Each of these treaties provided, moreover, that in the event of Professional's insolvency, the reinsurance afforded would be payable without diminution because of insolvency either directly to Professional or to its "liquidator, receiver or statutory successor." (Stipulation of Facts, Exhib. A, art. X; id., Exhib. B, art. III; id., Exhib. C, art. XI).
In 1973, Professional suffered irreversible financial difficulties. Defendant Superintendent declared Professional insolvent, and on October 17, the New York State Supreme Court, pursuant to N.Y. Ins. Law § 512 (McKinney 1966),
ordered the Superintendent to take possession of Professional's property for the purpose of rehabilitation. The Superintendent was unable to effect a rehabilitation of the company, and on April 12, 1974, the Supreme Court ordered him to liquidate Professional pursuant to N.Y. Ins. Law § 514 (McKinney 1966).
In accordance with that section, the Superintendent began to marshall Professional's assets and to receive claims for consideration and allowance in order that Professional's assets could be ratably distributed to its creditors. The Superintendent, therefore, demanded from plaintiffs the reinsurance proceeds that were due Professional on its matured risks.
Effective April 11, 1974, the New Jersey legislature created defendant Guaranty, pursuant to the New Jersey Property-Liability Guaranty Act ("New Jersey Guaranty Act"), codified as N.J. Stat. Ann. §§ 17:30A-1 to -19 (West Cum. Supp. 1977-78) (amended 1974).
Guaranty is a private non-profit association of insurers writing property and liability insurance policies in New Jersey. Its purpose is to protect New Jersey insureds against insurer insolvencies by making good on unpaid claims against insolvent insurers doing business in New Jersey. See id. §§ 17:30A-2(a), -5(d), -5(e). Guaranty is authorized to raise the funds to pay these claims by making assessments against its member insurers in proportion to the amount of "net direct written premiums"
each generates in a particular calendar year. Id. § 17:30A-8(a)(3). The member insurers are, in turn, empowered to increase the rates and premiums they charge by amounts sufficient to recoup the amounts they pay to Guaranty. Id. § 17:30A-16. After completing its organization process, Guaranty undertook its statutory duty of paying covered claims on Professional's New Jersey risks. Some of these New Jersey risks Guaranty paid have been sufficiently large to trigger plaintiffs' obligations under their reinsurance treaties with Professional.
It may be expected, moreover, that other New Jersey risks reinsured by plaintiffs will soon mature.
Section 8(a)(2) of the New Jersey Guaranty Act provides that Guaranty "[be] deemed the [insolvent] insurer to the extent of its obligation on the covered claims and to such extent has all rights, duties, and obligations of the insolvent insurer as if the insurer had not become insolvent." Id. § 17:30A-8(a)(2). Relying upon this section to claim that it is Professional's statutory successor under the reinsurance treaties or, alternatively, that it is equitably subrogated to Professional's claims against the plaintiffs because it has paid its matured New Jersey risks, Guaranty has demanded from plaintiffs all of the reinsurance proceeds arising out of the matured New Jersey risks. In addition, to preserve its right to a distribution of Professional's assets in the New York liquidation proceedings, Guaranty filed a proof of claim with the Superintendent pursuant to N.Y. Ins. Law § 544 for the amount it had paid on account of Professional's policy obligations.
Plaintiffs admit their liability to pay proceeds under the reinsurance treaties, both as to risks that have matured and as to others that will do so. Because Professional was dissolved by the New York Supreme Court's order of liquidation, plaintiffs' obligation to pay the reinsurance proceeds runs to Professional's "liquidator, receiver or statutory successor." Faced with the conflicting claims of the Superintendent and Guaranty, which had escalated into separate state court lawsuits in New York and New Jersey, plaintiffs commenced two separate actions under the Federal Interpleader Act, 28 U.S.C. § 1335 (1970). Soon thereafter, this court issued an order restraining the Superintendent and Guaranty from instituting or prosecuting any proceeding affecting the reinsurance proceeds. Skandia America Reinsurance Corp. v. Schenck, No. 74-5470 (S.D.N.Y. Jan. 23, 1975). The two interpleader actions were subsequently consolidated by stipulation, and the instant cross motions for summary judgment followed.
In its earlier decision ordering the claimants to refrain from prosecuting actions against the plaintiffs, this court determined that it could properly exercise subject matter jurisdiction over this action. All of the requirements of the federal interpleader statute appeared to be met. The amount in controversy exceeded $500, and the fact that the Superintendent's and Guaranty's claims did not have a common origin or were, in part, only potential claims did not defeat jurisdiction. See 28 U.S.C. § 1335 (1970). Moreover, this court held that because the rival claimants were citizens of New York and New Jersey respectively, the minimum diversity among claimants required by the statute appeared to be met. Skandia America Reinsurance Corp. v. Schenck, No. 74-5470, at 4-5 (S.D.N.Y. Jan. 23, 1975), citing State Farm Fire & Cas. Co. v. Tashire, 386 U.S. 523, 18 L. Ed. 2d 270, 87 S. Ct. 1199 (1967) and Merrill, Lynch, Pierce, Fenner & Smith, Inc. v. Cavicchia, 311 F. Supp. 149 (S.D.N.Y. 1970). Although none of the parties has questioned this initial determination that the exercise of jurisdiction is proper, further clarification of that decision may be helpful in light of the fact that the Superintendent has been sued in his official capacity.
Federal statutory interpleader is available only if there are "[two] or more adverse claimants of diverse citizenship as defined in section 1332 of [title 28]." 28 U.S.C. § 1335(a)(1) (1970). A state is not a "citizen" for purposes of diversity jurisdiction. Consequently, a suit between a state and a citizen of another state falls without the diversity jurisdiction of the federal courts. Moor v. County of Alameda, 411 U.S. 693, 717, 36 L. Ed. 2d 596, 93 S. Ct. 1785 (1973); Postal Telegraph Cable Co. v. Alabama, 155 U.S. 482, 487, 39 L. Ed. 231, 15 S. Ct. 192 (1894). The state need not be named as a party to defeat jurisdiction: an officer or an agency which is simply "the arm or alter ego of the State" may not be sued in diversity. State Highway Comm'n v. Utah Constr. Co., 278 U.S. 194, 199, 73 L. Ed. 262, 49 S. Ct. 104 (1929) (emphasis in original); accord, Krisel v. Duran, 386 F.2d 179, 181 (2d Cir. 1967) (per curiam). Thus, in Riley v. Worcester Cty. Trust Co., 89 F.2d 59, 65-68 (1st Cir.), aff'd on other grounds, 302 U.S. 292, 82 L. Ed. 268, 58 S. Ct. 185 (1937), the Court of Appeals for the First Circuit held that plaintiff's attempt to interplead state tax commissioners as adverse claimants was impermissible under the Federal Interpleader Act.
The Eleventh Amendment of the Constitution similarly presents an apparent obstacle to the exercise of federal court jurisdiction.
While the Amendment does not, on its face, bar suits against a state by its own citizens, an unconsenting state may not be sued in federal courts by either her own citizens or citizens of another state. Edelman v. Jordan, 415 U.S. 651, 662-63, 39 L. Ed. 2d 662, 94 S. Ct. 1347 (1974); Hans v. Louisiana, 134 U.S. 1, 33 L. Ed. 842, 10 S. Ct. 504 (1890). Moreover, even though the state is not named as a party to the action, the suit may nonetheless be barred by the Amendment. Edelman v. Jordan, supra, 415 U.S. at 663; Ford Motor Co. v. Dep't of Treasury, 323 U.S. 459, 464, 65 S. Ct. 347, 89 L. Ed. 389 (1945). Thus, in Worcester Cty. Co. v. Riley, 302 U.S. 292, 299-300, 82 L. Ed. 268, 58 S. Ct. 185 (1937), the Supreme Court held that plaintiff's attempt to interplead state tax commissioners as adverse claimants violated the Eleventh Amendment.
To the extent that this interpleader action may be a suit against the state, therefore, the federal interpleader statute does not permit, and the Eleventh Amendment prohibits, the exercise of federal court jurisdiction.
Suing an officer in his official capacity, however, does not mandate the conclusion that jurisdiction will not lie. In both the diversity statute and Eleventh Amendment contexts, the courts have applied the identical test to ascertain whether the suit is barred: the determinative factor is whether the state is the real party in interest. Edelman v. Jordan, supra, 415 U.S. at 663 (Eleventh Amendment); State Highway Comm'n. v. Utah Constr. Co., supra, 278 U.S. at 200 (diversity statute); Krisel v. Duran, supra, 386 F.2d at 181 (diversity statute); Porter v. Beha, 12 F.2d 513, 517 (2d Cir. 1926) (Eleventh Amendment); Merrill, Lynch, Pierce, Fenner & Smith, Inc. v. Cavicchia, supra, 311 F. Supp. at 154-55 (Eleventh Amendment). Several criteria have been developed to determine whether the state is a real party in interest. "[If] compliance with any decree entered by the court does not require the doing of any affirmative act which affects the state's political or property rights, the state is not the real party." Merrill, Lynch, Pierce, Fenner & Smith, Inc. v. Cavicchia, supra, 311 F. Supp. at 155, citing Hopkins v. Clemson College, 221 U.S. 636, 55 L. Ed. 890, 31 S. Ct. 654 (1911). A state official appointed to perform acts and duties which, though appropriate for governments, do not involve any sovereign rights of that state, is not immune from suits virtute officii. Porter v. Beha, supra, 12 F.2d at 517. That litigation may implicate the state's general governmental interest in the welfare of its citizens is insufficient to preclude the exercise of jurisdiction. Missouri, Kansas & Texas Ry. v. Missouri R.R. & Warehouse Comm'rs, 183 U.S. 53, 60, 46 L. Ed. 78, 22 S. Ct. 18 (1901).
Applying these principles to the case at bar, it is clear that the State of New York is not a real party in interest in this litigation. While the Superintendent claims the proceeds of the reinsurance treaties in his capacity as a state official, the outcome of the litigation will not affect the public fisc. Under New York law, the Superintendent liquidates the insolvent insurer, and distributes its assets, for the benefit of its claimants and creditors. N.Y. Ins. Law § 514 (McKinney's 1966) quoted in note 4, supra; Knickerbocker Agency, Inc. v. Holz, 4 N.Y.2d 245, 250, 149 N.E.2d 885, 890, 173 N.Y.S.2d 602, 609 (1958). No benefit will inure to the state by delivery of this property to the Superintendent other than the facilitation of its general governmental interest in achieving an orderly liquidation. Accordingly, the Federal Interpleader Act permits, and the Eleventh Amendment does not prohibit, the exercise of federal court jurisdiction in this case.
As jurisdiction in this case is based upon diversity of citizenship, this court must apply the law of the forum state, including its conflict of law rules, to determine the rights of the parties. Erie R.R. v. Tompkins, 304 U.S. 64, 82 L. Ed. 1188, 58 S. Ct. 817 (1938); Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 85 L. Ed. 1477, 61 S. Ct. 1020 (1941). Federal statutory interpleader actions, premised upon the diversity of citizenship of the claimants, are no different in this regard from actions brought under the court's general grant of diversity jurisdiction, 28 U.S.C. § 1332 (1970). Griffin v. McCoach, ...