O'Connor v. Insurance Company of North America

Reserve Insurance Company (Reserve) was a reinsurer. Reserve was party to reinsurance contracts with other reinsurers both as reinsurer of other insurance companies’ risks and as a reinsurer of its own risks. These contracts were known as the “3400 pool.” The 3400 pool was managed by three different managers at different times, American Reserve Insurance Brokers International, Montgomery and Collins, Inc. of Texas, and Petroleum Insurance, Inc. (defendants). While a party to the 3400 pool, Reserve issued insurance policies that were reinsured by other parties to the 3400 pool. Reserve also reinsured insurance policies issued by other parties to the 3400 pool. After each quarter, the manager of the 3400 pool (3400 Manager) would provide the parties to the 3400 pool with accountings of the parties’ premiums and the losses. If a party’s premiums exceeded its losses, the party would pay the 3400 Manager the difference between the premiums and the losses. Reserve’s losses frequently exceeded its premiums. Because of Reserve’s declining financial position, the 3400 Manager stopped issuing Reserve policies and cancelled some Reserve policies. The 3400 Manager then issued new policies in the names of other ceding companies to replace the cancelled Reserve policies. Reserve was found to be insolvent. Phillip O’Connor (plaintiff), a liquidator, sued the defendants on behalf of Reserve. O’Connor sought to recover, among other things, reinsurance proceeds, money owed to Reserve for policyholder claims the 3400 Manager paid from Reserve funds, unearned Reserve premiums held by the 3400 Manager, and unearned commissions on the Reserve policies that the 3400 Manager had cancelled. The defendants moved for summary judgment seeking a declaration that any amounts Reserve recovered from the defendants should be reduced by the amount of Reserve’s debts. O’Connor cross-moved for summary judgment, claiming that these amounts should not be reduced by the amount of Reserve’s debts.