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You Can Run, But You Can't Hide An Insurance Company

If you've been looking for the shortest sentence in a court opinion, you may have found it.  No shorter than the famous biblical verse, but with a vastly different meaning.  In a two-word sentence, the Ninth Circuit signals the culprit in the story:  "Enter Reliance."  (See page 5 of the .pdf version, last paragraph, first sentence). 

Even so, Reliance Insurance Company gets upstaged by a somewhat more prominent celebrity:  O.J. Simpson.  In the facts recited by the court, Hawthorne Savings loaned a man $2.6 million to purchase O. J. Simpson's former New York residence in a foreclosure sale (scroll down to "Business"), but then the President of Hawthorne Savings proceeded to outbid the man at the sale.  The prospective purchaser had planned to turn the home for over $3.7M, a rather hefty profit.  After Hawthorne outbid the man, he sued and settled with the bank for $700K. 

All told in the process of defending itself and settling the case, Hawthorne was out well over $1M.  Reliance reimbursed Hawthorne only about $10,000.  Insurance companies.  (You can provide your own emphasis to the last sentence).

Hawthorne then sued its insurer in state court for reimbursement for its attorneys fees and the cost of settling the underlying breach of contract claims.  Reliance removed to federal court, but then Reliance entered liquidation proceedings and claimed that federal jurisdiction was precluded by the exclusive jurisdiction of the liquidation proceedings in Pennsylvania.  It's commonly known as the "na-na-na-na-na you can't get me" defense, and while it may work for children, it didn't work here.

The Ninth Circuit upheld the district court's decision that rejected Reliance's abstention and full faith and credit claims.  Reliance had to post a $1.1 million litigation bond because it was in a weak financial position (as ultimately borne out by the Pennsylvania Insurance Commissioner's liquidation of Reliance.)

Reliance tried some pretty tricky procedural techniques, but in the end, it was substance over form.


Posted by J. Craig Williams on Thursday, August 25, 2005

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