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Petrosurance, Inc v. National Association of Insurance Commissioners and

August 20, 2012


The opinion of the court was delivered by: Naomi Reice Buchwald United States District Judge


Plaintiff Petrosurance, Inc. ("Petrosurance") brings this action under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq., alleging that defendants National Association of Insurance Commissioners ("NAIC") and National Conference of Insurance Guaranty Funds, Inc. ("NCIGF") fraudulently delayed plaintiff's recovery of approximately $14 million from the liquidated estate of an Ohio insurance company. Defendants have jointly moved to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6).

For the reasons discussed herein, defendants' motion is granted.


I. OGICO's Liquidation

Plaintiff was the sole shareholder of The Oil & Gas Insurance Company ("OGICO"), an Ohio-based casualty insurance company that was declared insolvent by the Franklin County Court of Common Pleas in Ohio (the "Trial Court") in August of 1990. Upon the declaration of insolvency, and over plaintiff's objection, that court ordered the Ohio Superintendent of Insurance (the "OSI") to liquidate the company.

The OSI initiated liquidation proceedings and distributed proof of claim forms that required all claims against the OGICO estate to be submitted by December 31, 1991. On October 3, 1996, the Trial Court ordered that, as of December 31, 1997, late-filed claims would no longer be accepted. During the intervening years, the OSI had made no payments to any of OGICO's creditors. The OSI allegedly first offered an explanation for this delay in 2001, indicating that no distributions could be made until the United States government had provided formal claim releases to OGICO, even though the United States never asserted any claim on the OGICO estate.

Prior to the claim bar date, on August 21, 1991, a claim form was submitted by Mark G. Hardy*fn2 on behalf of himself and the family of companies to which plaintiff belongs, for an unstated amount of "intercompany balances and other monies due" (the "1991 Claim"). See Hudson v. Petrosurance, Inc. ("Petrosurance I"), No. 08AP-1030, 2009-Ohio-4307, ¶¶ 3, 41 (Ohio Ct. App. Aug. 25, 2009). The OSI denied that claim in its entirety on August 19, 2002, determining that it was a "Class 5" claim without value,*fn3 and no objections were filed with respect to that determination. See id. ¶¶ 3, 42.

No distributions from the liquidation estate were made until 2004,*fn4 when the Trial Court authorized a single payment to each of OGICO's policyholder claimants in full and final settlement of their claims. A second payment was made in 2006 to all of OGICO's general creditors whose claims had been allowed, as well as state and local governments. At that time, the OGICO estate contained some $14 million, and plaintiff asserted that it had rights to the money as shareholder equity. The OSI provided plaintiff with a proof of claim form to formally assert its claim to the funds.

Months later, on April 30, 2007, before plaintiff had submitted this claim form, the OSI filed an action in the Trial Court seeking a declaratory judgment that plaintiff did not have a right to the funds remaining in the OGICO estate. Plaintiff opposed the action, contending that the relevant Ohio state legislation provided that, after all claims and administrative expenses have been paid, the balance of a liquidated insurance company's estate belongs to the company's shareholders. Acting on their respective positions, plaintiff attempted to file a proof of claim form on October 16, 2007 (the "2007 Claim"), and the OSI refused it on November 1, 2007. The complaint does not indicate the grounds on which the filing was refused, but apparently the OSI rejected the claim form because it was filed after the December 31, 1997 cut-off date for proof of claims and because the OSI considered it encompassed by the 1991 Claim, which had been denied in 2002 without objection. See Petrosurance I, 2009-Ohio-4307, ¶ 7.

The OSI subsequently moved for summary judgment on its declaratory judgment action and requested an order permitting the pro rata distribution of the remainder of the estate as interest on the previously allowed claims. The Trial Court authorized the requested distribution in August of 2008, without ruling on whether plaintiff had properly asserted a claim to funds of the OGICO estate. Plaintiff appealed that decision, and it was reversed the following year by the Court of Appeals of Ohio (the "Appellate Court"), which found that the statutory scheme of priority in liquidations did not provide for the payment of interest.*fn5 See Petrosurance I, 2009-Ohio-4307, ¶ 35. The Appellate Court further found that the OSI should have accepted the 2007 Claim for filing because it was not encompassed by the 1991 Claim and the 2007 Claim was not subject to the December 31, 1997 bar date. See id. ¶¶ 30, 43, 44. That court did not, however, determine whether plaintiff was actually entitled to any money from the estate. See id. ¶ 46. The Appellate Court's decision, too, was appealed, and the Supreme Court of Ohio affirmed it and remanded the case to the Trial Court to permit plaintiff to submit a proof of claim. See Hudson v. Petrosurance, Inc., 936 N.E.2d 481, 487-88 (Ohio 2010). Subsequently, plaintiff and the OSI settled the dispute, under which settlement plaintiff was to receive approximately $14 million from the OGICO estate. See Order, Taylor v. Oil & Gas Ins. Co., no. 90CVH-05-3409 (Ohio C.P. Feb. 15, 2011). In return, plaintiff released the following entities from liability for claims related to the OGICO liquidation: the OGICO estate, the OSI in her capacity as liquidator of OGICO and as Ohio's representative in NAIC, and the OSI's "regulators" and "consultants," among others. Release 1-3, annexed to Final Closing Order, Taylor, no. 90CVH-05-3409 (Ohio C.P. Feb. 25, 2011).

II. Defendants

Plaintiff's substantive allegations with respect to defendants are scant. NAIC is a Delaware corporation located in Washington, DC that has a membership consisting of the principal insurance regulatory officials of the United States, including state insurance regulators like the OSI. NAIC allegedly "formulates, represents and directs the views and conduct of the state government officials who regulate the insurance industry and enforce the states' insurance laws."*fn6 (Compl. ¶ 9.)

The complaint describes NCIGF as a non-profit trade association located in Indiana that allegedly "monitors national insurance activities, coordinates information for multi-state insolvencies and provides legal and public policy support for its members," which are property and casualty guaranty funds.*fn7

(Compl. ¶ 11.) When NAIC members liquidate insurance companies, NCIGF members receive "early access payments" from the estates, which are used to ensure that the funds can themselves make distributions to claimants.*fn8 No other connection is alleged to exist between NAIC and NCIGF.

Defendants are alleged -- in highly conclusory fashion --to control state insurance regulatory officials, including the OSI. (Compl. ¶¶ 3, 10, 31, 32.) They are, moreover, alleged to have formulated and advanced positions relied upon by the OSI when delaying payment to plaintiff in satisfaction of plaintiff's claim on the OGICO estate -- namely, (1) that shareholders of liquidated insurance companies have no claim to funds in the estate until all claims of higher priority --including interest on those claims -- have been paid, and (2) that a liquidated insurance company should make no payments on any claims until the United States government has released its claims on the estate.

NAIC allegedly adopted a stance contrary to these positions in an amicus curiae brief it filed in Bowler v. United States, No. 02-1124 (Sup. Ct. Mar. 3, 2003), cert. denied 538 U.S. 1031 (2003) (the "Amicus Brief").*fn9 At issue in Bowler was the First Circuit's decision in Ruthardt v. United States, 303 F.3d 375, 384 (1st Cir. 2002), which held that claim bar dates for insurer liquidations do not apply to claims made by the United States. The decision permits the United States to file a claim in a liquidation at any time and be entitled to its normal priority, which, NAIC argued in the Amicus Brief, creates difficulty for state insurance liquidators in making distributions from an estate while such a specter still looms. See Amicus Brief at 5-6. NAIC has contended that this situation is bad policy, resulting in increased administrative expenses and claimants not being paid distributions that would otherwise be made until the United States releases any potential claims it may have. See id. at 8-9.

III. The Instant Suit

Plaintiff filed this suit on October 3, 2011. As best as we can determine its theory from its meandering and frequently conclusory complaint,*fn10 plaintiff appears to be contending that: defendants formulate policy positions on insurance company liquidation issues and specifically direct regulatory officials as to how to manage their liquidations; defendants established positions that shareholders of liquidated insurance companies should be paid only after interest on other allowed claims has been paid and that no claims should be paid until the United States releases its own claims; defendants knew that these positions were poor policy, as evidenced by the Amicus Brief filed by NAIC; defendants caused the OSI to adopt these positions; based on those positions, the OSI delayed making distributions from the estate; in perpetuating that delay, defendants caused communications to be sent by wire and mail that were either fraudulent or in furtherance of a fraud; also based on the positions advocated by defendants, the OSI brought the declaratory judgment action against Petrosurance; based on the arguments advanced in that action by the OSI, the Ohio Court granted the OSI's motion for summary judgment; and Petrosurance was therefore forced to incur legal costs and denied access to the funds it eventually received for an undue period of time. Together, these events allegedly amount to a RICO violation.

Plaintiff, in embellishing the mail and wire fraud aspect of its theory, has listed in its complaint a variety of communications allegedly made by mail or wire. In addition to the Amicus Brief, the complaint identifies: two memoranda dated March 17, 2002 and March 21, 2002, respectively, from Douglas L. Hertlein to Keith Berman, the contents of which are not described; a March 22, 2002 memorandum from Hertlein to Berman "refusing to disclose information as to claims filed against the OGICO estate"; a March 25, 2002 memorandum from Hertlein to Berman "refusing to disclose information about the OGICO estate"; an August 19, 2002 letter from Hertlein to an undisclosed recipient "stating that Petrosurance's claim [on the OGICO estate] was treated as a 'Class 5' claim 'valued in the amount of $0.00'"; an October 15, 2003 memorandum from Hertlein to Berman "asserting that Hertlein was waiting for a release from the 'US Government' before 'making a final distribution by the end ...

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