In the Matter of Liquidation of The Home Insurance Company

THE STATE OF NEW HAMPSHIRE

SUPREME COURT

In Case No. 2016-0569, In the Matter of Liquidation of The
Home Insurance Company, the court on October 27, 2017,
issued the following order:

Having considered the briefs and oral arguments of the parties, the court
concludes that a formal written opinion is unnecessary in this case. Roger A.
Sevigny, Commissioner of Insurance of the State of New Hampshire, as
Liquidator (the Liquidator) of The Home Insurance Company (Home), appeals
the determination of the Superior Court (Nicolosi, J.) that the Liquidator is not
authorized to deduct legal expenses incurred by the California Insurance
Guarantee Association (CIGA) in defending a suit brought by the Western
Asbestos Settlement Trust (Western Trust), under Home insurance policies.
We reverse.

The relevant facts follow. Home is an insurance company, organized
under the laws of New Hampshire, which was declared insolvent and placed in
liquidation in 2003. In the Matter of Liquidation of Home Ins. Co., 166 N.H.
84, 86 (2014). The Liquidator is vested with title to, and charged with
administering and collecting, Home’s assets for distribution to Home’s
creditors. Id.

Western Trust was created in 2004 as a result of a bankruptcy
reorganization of Western Asbestos Company, Western MacArthur Company
and MacArthur Company (the Western Companies). As part of that
reorganization, Western Trust holds the Western Companies’ rights and
responsibilities under numerous Home insurance policies. Western Trust
exists solely to compensate asbestos-related victims of the Western Companies
and is funded by the proceeds from the Western Companies’ insurance
settlements.

CIGA is a statutory entity that was created “to establish a fund from
which insureds could obtain financial and legal assistance in the event their
insurers became insolvent.” Isaacson v. California Ins. Guar. Ass’n, 750 P.2d
297, 303 (Cal. 1988). “All insurers transacting insurance business in
California are involuntary members of CIGA, unless specifically exempted by
statute.” Id. “The statutory purpose of CIGA is to provide for each insurer
member insolvency insurance to pay the claims arising out of policies issued by
an insurer who becomes insolvent.” Id. at 304 (quotation and brackets
omitted).
 After Home was placed in liquidation, Western Trust claimed entitlement
to approximately $1 billion under Home policies issued to the Western
Companies. In February 2011, the Liquidator entered into a Settlement
Agreement and Mutual Release (Settlement Agreement) with Western Trust.
The Settlement Agreement provided for a “Recommended Amount” of
$242,500,000 to be allowed as a Class II priority claim of Western Trust in the
Home liquidation. See RSA 402-C:44, II (2006). In May 2011, the trial court
approved the Settlement Agreement.

In February 2013, Western Trust sued CIGA in California, seeking a
declaration that Western Trust “is entitled to obtain payments from [CIGA] for
asbestos bodily injury liabilities . . . that are covered” by the Home policies (the
so-called Snyder action). The Snyder action is pending and Western Trust and
CIGA have agreed upon a phased litigation.

The Liquidator determined that, pursuant to the Settlement Agreement,
CIGA’s legal expenses incurred in defending the Snyder action are expenses
that CIGA is entitled to recover in the Home liquidation and are, therefore,
properly deducted from the Recommended Amount. Western Trust objected
and moved for an order “disallowing CIGA’s Expenses and/or directing the
Liquidator to pay the Western Trust’s Allowed Claim without any reduction for
CIGA’s Expenses.” Following a hearing, the trial court ruled that the
Liquidator is not entitled under the Settlement Agreement to deduct CIGA’s
legal expenses incurred in defending the Snyder action from the Recommended
Amount. This appeal followed.

Resolving this appeal requires us to interpret the Settlement Agreement
between the parties. Our review of the Settlement Agreement is de novo
“because the proper interpretation of a written agreement is ultimately a
question of law for this court.” Signal Aviation Servs. v. City of Lebanon, 169
N.H. 162, 166 (2016) (quotation and brackets omitted). Our standards
regarding contract interpretation are well-established.

It is axiomatic that we give an agreement the meaning intended by
the parties when they wrote it. When interpreting a written
agreement, we give the language used by the parties its reasonable
meaning, considering the circumstances and context in which the
agreement was negotiated, when reading the document as a whole.
Absent ambiguity, the parties’ intent will be determined from the
plain meaning of the language used. Only when the parties
reasonably disagree as to its meaning will the agreement’s
language be deemed ambiguous.

Id. (quotation omitted).

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 The dispute between the parties centers around Paragraph 9B(1) of the
Settlement Agreement, titled “Resolution of Matters and Indemnification,”
which states:

[Western Trust] acknowledge[s] that, in the event [it]
pursue[s] any claim under the Policies against any Insurance
Guaranty Association, the Insurance Guaranty Association’s
expenses of addressing the claim and any recovery may become a
claim by the Insurance Guaranty Association in the Home
liquidation. [Western Trust] agree[s] that any judgments,
settlements, or other recoveries by [Western Trust] from any
Insurance Guaranty Association with respect to the Policies
(“Recovery” or “Recoveries”) and the Insurance Guaranty
Association’s Policies-related expenses incurred after the Effective
Date of this Agreement (“Expenses”) shall be deducted from the
Recommended Amount. In the event of such Expenses or
Recovery, the amount allowed as a Class II claim in the Home
liquidation shall be the Recommended Amount minus both (i) the
Expenses, and (ii) any Recoveries.

(Underlining omitted.)

The Liquidator argues that Paragraph 9B(1) “expressly provides for
CIGA’s expenses to be deducted from the Recommended Amount.” The
Liquidator asserts that the first sentence of Paragraph 9B(1) “acknowledges the
existence of a problem: the Western Trust’s . . . pursuit of a guaranty
association may result in additional liability and expenses for the Home estate.”
According to the Liquidator, the second sentence of Paragraph 9B(1) addresses
that problem “by providing for the deduction of any recovery and the guaranty
association’s expenses from the Recommended Amount.” The third sentence,
the Liquidator contends, “states the consequence of the deduction.”

Western Trust counters that “[e]ven if the first sentence of Paragraph
9B(1) of the [Settlement] Agreement did control the scope of the authorized
deductions to the Allowed Claim (it does not), the Declaratory Judgment Action
is not a ‘claim under the Policies’ within the meaning of the [Settlement]
Agreement,” and, thus, “CIGA’s expenses incurred in those proceedings . . . are
not ‘expenses of addressing [a] claim.’” Relying upon California law, Western
Trust contends that “a cause of action for declaratory relief does not involve the
prosecution of a ‘claim’ against the defendant,” but, rather, “seeks simply to
‘declare’ rights between the parties.” Thus, Western Trust asserts, “[u]nless
and until the Trust submits a claim for payment to CIGA[,] . . . there will be no
‘claim under the Policies’ and consequently, no ‘expenses of addressing [a]
claim.’”

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 Determining the meaning of the phrase “any claim under the Policies
against any Insurance Guaranty Association,” as set forth in Paragraph 9B(1)
of the Settlement Agreement raises a question of contract interpretation. The
Settlement Agreement expressly provides that it “shall be governed by and
construed in accordance with the laws of the State of New Hampshire.” Thus,
we agree with the Liquidator that “[w]hether a declaratory action presents a
‘claim’ under California law has no bearing on the question whether the Snyder
Action presents a ‘claim under the Policies’ within the [Settlement] Agreement.”

In determining the reasonable meaning of the language used by the
parties in the Settlement Agreement, we consider “the circumstances and
context in which the agreement was negotiated.” Id. at 166 (quotation
omitted).

According to the Settlement Agreement, when it was being negotiated,
Western Trust was pursuing litigation against Zurich-American Insurance
Company and related entities in California, known as the “Zurich Litigation.”
In that litigation, Western Trust asserted a cause of action against CIGA for
declaratory relief. See Snyder v. Cal. Ins. Guar. Ass’n, 229 Cal. App. 4th 1196,
1203 (2014) (explaining that in the Zurich Litigation, Western Trust “pled a
declaratory relief cause of action against CIGA” seeking “to determine the
existence and scope of CIGA’s obligations to them in light of Home’s
liquidation” (quotations and brackets omitted)).

The Liquidator explained to the trial court when he moved for approval of
the Settlement Agreement that it

is different from other settlement agreements previously approved
by the Court. In the Settlement Agreement, [Western Trust] and
Liquidator release each other from any claim arising from or
related to the proofs of claim. However, unlike other settlement
agreements, the Settlement Agreement does not resolve all matters
arising from or related to the Home insurance policies. . . . As part
of the Zurich Litigation, [Western Trust has] asserted claims
against [CIGA] under the Home policies, and [Western Trust has],
or may, assert such claims against other insurance guaranty
associations.

The Liquidator explained that “[w]hen an insurance guaranty association such
as [CIGA] responds to a claim under an insolvent insurer’s policy, the
association generally has a corresponding claim in the insurer’s liquidation
both for its expenses and any payment to the claimant.”

The Liquidator stated that, to “maintain the position of the Home estate
and its Class II creditors under the Settlement Agreement regardless of the
outcome of [Western Trust’s] claim against [CIGA] . . . under the Home

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policies,” the Settlement Agreement addressed the “insurance guaranty
association issues . . . as follows”:

[Western Trust] agree[s] to dismiss, without prejudice, [its] claims
against [CIGA] in the Zurich Litigation. Settlement Agreement
¶ 10. If [Western Trust] subsequently pursue[s] claims under the
Home policies against any insurance guaranty association, [it]
acknowledge[s] that the association’s expenses of addressing the
claim and any recovery from the association may become a claim
in the Home liquidation. Id. ¶ 9(B)(1). The Home and its Class II
creditors are protected against the impact of such a claim because
any such expenses or recovery will be deducted from the
recommended amount allowed to [Western Trust] as a Class II
claim in the Home liquidation. Id. If the expenses and recovery
exceed the recommended amount, [Western Trust] will not recover
anything from the Home liquidation. Id. ¶ 9(B)(2).

(Emphasis added.) The record does not contain any objection by Western Trust
to the Liquidator’s motion.

The Settlement Agreement contains several clauses addressing the
Zurich Litigation in which Western Trust’s declaratory judgment action is
referred to as “claims” asserted by Western Trust against CIGA. For example,
the Settlement Agreement provides:

WHEREAS, [Western Trust is] currently pursuing claims
against Zurich-American Insurance Company . . . ;

WHEREAS, the Parties are desirous of resolving all claims
that were asserted, or could have been or could be asserted,
between them . . . ;

....

4. Acknowledgement of Other Claims. The Liquidator
acknowledges that he is aware of [Western Trust’s] pending claims
in the Zurich Litigation and takes no position as to those claims.
This Settlement Agreement is not intended to affect those claims
other than the claim asserted by [Western Trust] in the Zurich
Litigation against [CIGA].

....

10. Dismissals. Within ten days of the Effective Date,
[Western Trust] shall . . . dismiss or discontinue, without
prejudice, [its] claims against [CIGA] in the Zurich Litigation.

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(Emphases added.) Furthermore, in agreeing to dismiss, without prejudice, its
“claims” against CIGA in the Zurich Litigation, Western Trust acknowledged in
the Settlement Agreement that “in the event [it] pursue[s] any claim under the
Policies against any Insurance Guaranty Association,” that insurance guaranty
association’s “expenses of addressing the claim . . . may become a claim” by the
insurance guaranty association in the Home liquidation. (Emphases added.)

The plain language used by the parties in the Settlement Agreement
repeatedly describes the declaratory judgment action against CIGA in the
Zurich Litigation as a “claim.” Accordingly, we reject Western Trust’s assertion
that the language in Paragraph 9B(1) referring to “any claim under the Policies
against any Insurance Guaranty Association,” does not encompass the
subsequent declaratory action brought by Western Trust against CIGA in the
Snyder action.

Western Trust further argues that, “even if the Declaratory Judgment
Action constitutes a ‘claim under the Policies’ against CIGA . . . , . . . the
[Settlement] Agreement does not permit the Liquidator to reduce the Trust’s
Allowed Claim by CIGA’s legal fees in those proceedings because they are not
‘Policies-related expenses’ under Section 9B(1) of the [Settlement] Agreement.”
Western Trust asserts that its interpretation of the Settlement Agreement
incorporates RSA 402-C:44, II, which defines Class II “Policy Related Claims,”
and that the phrase “Policies-related expenses” in the Settlement Agreement is
an “apparent typographical error.” (Capitalization omitted.) Again, we turn to
the language of the Settlement Agreement to resolve this issue.

The term “Policies” is defined in the Settlement Agreement as insurance
policies “under which [the Western Companies] are named insureds . . .
together with all other insurance policies that Home may have issued to [the
Western Companies].” In turn, Paragraph 9B(1) provides that “[Western Trust]
agree[s] that any judgments, settlements, or other recoveries by [Western Trust]
from any Insurance Guaranty Association with respect to the Policies . . . and
the Insurance Guaranty Association’s Policies-related expenses incurred after
the Effective Date of this Agreement (‘Expenses’) shall be deducted from the
Recommended Amount.” (Emphases added.)

Under the plain language used, “Policies-related expenses” refer to
expenses incurred by an insurance guaranty association, such as CIGA, after
the effective date of the Settlement Agreement in the event that Western Trust
chooses to bring a new action against an insurance guaranty association, such
as CIGA, after dismissing its claims in the Zurich Litigation. CIGA’s expenses
in responding to the Zurich Litigation prior to the effective date of the
Settlement Agreement are not deducted. Nothing in the language of the
Settlement Agreement supports Western Trust’s position that the term

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“Policies-related expenses” as defined by the parties is intended to incorporate
the phrase “Policy Related Claims” in RSA 402-C:44, II.

Furthermore, as noted by the Liquidator, “the word ‘related’ is broad and
readily encompasses expenses incurred in defending against litigation over
CIGA’s obligations respecting Home policies.” See Webster’s Third New
International Dictionary 1916 (unabridged ed. 2002) (“related” is defined as
“having relationship : connected by reason of an established or discoverable
relation”); see also Black’s Law Dictionary 1479 (10th ed. 2014) (“related” is
defined as “[c]onnected in some way; having relationship to or with something
else”). Thus, the reasonable meaning of the phrase “Policies-related expenses”
encompasses all expenses “related” to the policies, including those incurred in
defending a declaratory judgment action that asserts rights thereunder.

Finally, Western Trust argues that “the Liquidator’s deduction of CIGA’s
. . . legal expenses from the Trust’s Class II priority allowed claim is in conflict
with the priority statute.” (Capitalization and bolding omitted.) According to
Western Trust, “[b]y singling out . . . [Western] Trust by deducting CIGA’s
expenses incurred in the Declaratory Judgment Action from its Allowed
Claim[,] . . . the Liquidator has created an effective subclass within the Class II
priority tier in derogation of” RSA 402-C:44.

The Liquidator counters that “the agreed deduction does not create such
a subclass,” but “is instead a negotiated adjustment to the settlement amount
to reflect the particular and unusual circumstances of the Western Trust’s
claim.” As the Liquidator explains, “The Liquidator and . . . [Western] Trust
negotiated the amount for which . . . [Western] Trust’s claim would be
recommended to the Court as the $242.5 million Recommended Amount . . . ,
‘[s]ubject to all the terms of this Settlement Agreement,’” including the
deductions set forth in Paragraph 9B. Given the possibility that Western Trust
might pursue a claim under the Policies against CIGA, the parties negotiated
the terms of the Settlement Agreement to reflect “that . . . [Western] Trust
might increase the amount of CIGA’s claim in the Home estate for expenses
and any additional recovery from CIGA.” Therefore, to account for that
possibility, “[t]he deductions are intended to maintain the relative position of
creditors as they stood at the time of the settlement.”

We agree that the negotiated deductions in Paragraph 9B(1) of the
Settlement Agreement do not create a subclass in violation of RSA 402-C:44.
Rather, the deductions to which the parties agreed represent an adjustment to
the negotiated Recommended Amount upon which distributions to all Class II
creditors will be made.

For the reasons set forth above, we hold that the trial court’s
determination that the Liquidator is not entitled under the Settlement

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Agreement to deduct CIGA’s legal expenses incurred in defending the Snyder
action was erroneous.

Reversed.

DALIANIS, C.J., and HICKS, LYNN, and HANTZ MARCONI, JJ.,
concurred.

Eileen Fox,
Clerk

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