THE STATE OF NEW HAMPSHIRE SUPREME COURT IN THE MATTER OF THE LIQUIDATION OF THE HOME INSURANCE COMPANY

Transcription

1 THE STATE OF NEW HAMPSHIRE SUPREME COURT No IN THE MATTER OF THE LIQUIDATION OF THE HOME INSURANCE COMPANY (PECO Interest) Appeal and Cross-Appeal from a Final Decision of the Merrimack County Superior Court BRIEF ON BEHALF OF THE INSURANCE COMMISSIONER AS LIQUIDATOR OF THE HOME INSURANCE COMPANY ROGER A. SEVIGNY, INSURANCE COMMISSIONER OF THE STATE OF NEW HAMPSHIRE, AS LIQUIDATOR OF THE HOME INSURANCE COMPANY, MICHAEL A. DELANEY A TTORNEY GENERAL 1. Christopher Marshall NHBarIDNo.1619 Civil Bureau New Hampshire Department of Justice 33 Capitol Street Concord, NH (603) David Leslie NH Bar ID No Eric A. Smith NH Bar ID No Rackemann, Sawyer & Brewster P.C. 160 Federal Street Boston, MA (617) January 14,2013 To be argued by 1. David Leslie (15 minutes)

2 TABLE OF CONTENTS TABLE OF AUTHORITIES... iii ADDITIONAL QUESTION PRESENTED FOR REVIEW BY CROSS-APPEAL... 1 TEXT OF PERTINENT STATUTES... 1 STATEMENT OF THE CASE... 1 Background... 1 The Three Sets of Claims Procedures The Claims Procedures Order The Claims Protocol The Joint Report... 8 The Assertion and Determination of CIC' s PECO Claim... 9 SUMMARY OF ARGUMENT STANDARD OF REVIEW ARGUMENT I. CIC Is Required to Pay Statutory Interest On The Amounts Due But Withheld Based on The Improper Setoff A. Interest is Proper under RSA 524: I-a Because the Litigation Sought to Collect a Debt Owed by CIC B. The Parties' Procedural Agreements Are Not "Comprehensive," and Their Silence on the Subject oflnterest Does Not Waive Statutory Interest The Claims Protocol is not comprehensive but leaves unaddressed matters such as interest to future proceedings The Claims Protocol, Joint Report and Claims Procedures Order address different matters and do not somehow together waive statutory rights to interest

3 C. Interest is Due under RSA 524:1-a from the Date of the Liquidator's Demand, October 12, II. CIC Should Be Required to Pay Interest Because It Has Been Unjustly Enriched By Withholding Payment From the Liquidator Based On the Improper PECO Setoff CONCLUSION ORAL ARGUMENT ADDENDUM 11

4 TABLE OF AUTHORITIES Cases Appeal of Granite State Elec. Co., 120 N.H. 536 (1980)... 29,31 Birch Broad., Inc. v. Capitol Broad. Corp., Inc., 161 N.H. 192 (2010) Chagnon v. Union-Leader Corp., 104 N.H. 472 (1963) Clapp v. Goffstown School Dist., 159 N.H. 206 (2009) Cohen v. Frank Developers, Inc., 118 N.H. 512 (1978) Crowley v. Town of Loudon, 162 N.H. 768 (2011) Czumak v. N.H. Div. of Developmental Servs., 155 N.H. 368 (2007)... 20, 28 General Insulation Co. v. Eckman Const., 159 N.H. 601 (2010) Hathorn v. Loftus, 143 N.H. 304 (1999) In the Matter of Liguidation of Home Ins. Co., 154 N.H. 472 (2006)... 2,4,6,30 In the Matter of Liguidation of Home Ins. Co., 157 N.H. 543 (2008)... 2,20 In the Matter of Liquidation of Home Ins. Co., 158 N.H. 677 (2009)... passim J & M Lumber & Const. Co., Inc. v. Smyjunas, 161 N.H. 714 (2011)... 13,26 Koken v. Legion Ins. Co., 900 A.2d 418 (Pa. Commw. Ct. 2006) Kowalski v. Cedars of Portsmouth Condominium Ass'n., 146 N.H. 130 (2001)... 29, 31 Linteau v. Gauthier, 142 N.H. 460 (1997) Long Beach Trust Co. v. Warshaw, 190N.E. 659 (N.Y. 1934) Metropolitan Prop. & Liab. Ins. Co., 138 N.H. 378 (1994) Motion Motors, Inc. v. Berwick, 150 N.H. 771 (2004) N. Country Envtl. Servs. V. Town of Bethlehem, 146 N.H. 348 (2001) N.H. Ass'n of Counties v. Commissioner, N.H. Dept. of Health & Human Servs., 156 N.H. 10 (2007)

5 Nault v. N & L Dev. Co., 146 N.H. 35 (2001)... 13, 17 One Beacon Ins., LLC v. M & M Pizza, Inc., 160 N.H. 638 (2010) Patterson v. Tirollo, 133 N.H. 623 (1990) Petition of Gunzel, 124 N.H. 495 (1984) R. Zoppo Co., Inc. v. City of Manchester, 122 N.H (1982)... 29,32 Singer Asset Fin. Co. v. Wyner, 156 N.H. 468 (2007) South Willow Properties, LLC v. Burlington Coat Factory, 159 N.H. 494 (2009) Stankiewicz v. City of Manchester, 156 N.H. 587 (2007) State v. Farrow, 140 N.H. 473 (1995) Trustees of Phillips Exeter Academy v. Exeter, 90 N.H. 472 (1940) Varney v. General Enolam, Inc., 109 N.H. 514 (1969) Statutes RSA 336:1(b) RSA 365: RSA 402-C: 1, IV RSA 402-C:21, : RSA 402-C:34... passim RSA 402-C:34, II(b)... passim RSA 402-C: RSA 402-C: , 15 RSA 402-C:37, I... 2 RSA 402-C:44, II RSA 515: RSA 524: I-a... passim RSA 524:1-b... 17,31 IV

6 Other Authorities 11 R. Lord, Williston on Contracts 30: 19, (4th ed. 2012) N.H.S. Jour. (1963) v

7 ADDITIONAL QUESTION PRESENTED FOR REVIEW BY CROSS-APPEAL Is Century Indemnity Company required to pay interest because it was unjustly enriched by withholding payment from the Liquidator based on the improper PECO setoff? See Liquidator's Motion for Interest on Amounts Withheld by Century Indemnity Company Based on Improper Setoff (Appendix to Brief for Appellant ("App.") at 58, 64-66). TEXT OF PERTINENT STATUTES The text ofrsa 524: I-a and RSA 402-C:34 is set forth in the Brief of Appellant Century Indemnity Company ("CIC Br.") at 2. ST ATEMENT OF THE CASE In its earlier decision, the Court held that a setoff asserted by Century Indemnity Company ("CIC") was prohibited by RSA 402-C:34, II(b). In the Matter of Liquidation of Home Ins. Co., 158 N.H. 677,684 (2009) ("Home IV"). The Court remanded for the trial court to decide whether the estate of the insolvent The Home Insurance Company ("Home") is entitled to interest on payments CIC wrongfully withheld based upon setoff. Id. The Superior Court held that Home's estate was entitled to statutory interest, App. 117 (included in the Addendum to this brief), and CIC appeals. Roger A. Sevigny, Insurance Commissioner of the State of New Hampshire, as liquidator ("Liquidator") of Home, cross-appeals to contend that interest is also available under principles of unjust enrichment, a point the Superior Court did not reach. Background The general background to this dispute has been described by the Court in its earlier decisions. As set forth in Home IV, Home is an insurance company, organized under the laws of New Hampshire, which was declared insolvent and placed in liquidation in N.H. at

8 679. The Liquidator is vested with title to and charged with administering and collecting Home's assets for distribution to Home's creditors. Id.; RSA 402-C:21, :25. All persons asserting claims against Home must file proofs of claim in the New Hampshire liquidation proceeding. Home IV, 158 N.H. at 679; RSA 402-C:37, I. CIC is an insurance company which reinsures Home with respect to certain contracts between Home and other insurers known as the "AFIA Cedents." Home IV, 158 N.H. at 679; see In the Matter of Liquidation of Home Ins. Co., 154 N.H. 472,474 (2006) ("Home I") (explaining the AFIA relationships). As claims under those contracts are allowed against Home in liquidation, CIC remits funds to Home pursuant to an agreed claims protocol (the "Claims Protocol" described below). Home IV, 158 N.H. at ; see In the Matter of Liquidation of Home Ins. Co., 157 N.H. 543, 545 (2008) ("Home II"). The Claims Protocol provides that these payments "shall be net of set off in compliance with" RSA 402-C:34 or as otherwise allowed under New Hampshire law. Home IV, 158 N.H. at 680; Home II, 157 N.H. at 545. CIC and Home issued policies to various common insureds. CIC has asserted contribution claims against Home with respect to certain of those insureds, and CIC is using those claims as setoffs to reduce amounts paid to Home. As pertinent here, CIC and Home both insured Philadelphia Energy Company ("PECO"). The CIC setoff at issue arose in connection with a 2005 confidential settlement agreement between PECO and CIC under which CIC paid $13 million to PECO to settle certain environmental claims. Home IV, 158 N.H. at 680. In the settlement, CIe agreed not to seek indemnification, contribution or subrogation concerning amounts it paid to PECO from any other insurer or alleged insurer ofpeco. Id. In 2007, CIC and PECO entered into another settlement agreement, concerning asbestos liabilities, and, for "collective consideration," amended the 2005 agreement. Id. The amendment specifically 2

9 allowed CIC to seek indemnification, reimbursement, contribution, or subrogation for amounts it paid PECO under the 2005 agreement from "any currently insolvent insurer ofpeco." Id. CIC then asserted a contribution/subrogation claim against Horne for $8 million of the $13 million PECO environmental settlement and set that amount off against reinsurance due to Home. Home IV, 158 N.H. at 680. The Liquidator disputed the validity of the asserted setoff, and the parties jointly requested that the Referee deem the matter a disputed claim proceeding to be resolved in accordance with RSA 402-C and a claims procedures order (the "Claims Procedures Order" described below). Id. at In Home IV, the Court held that RSA 402-C:34, II(b) precluded CIC's asserted PECO setoff. 158 N.H. at That section provides: "No setoff shall be allowed in favor of any person where... (b) [t]he obligation of the insurer to the person was purchased by or transferred to the person with a view to its being used as a setoff." RSA 402-C:34, II. CIC conceded that it entered into the 2007 transaction to obtain a setoff. Home IV, 158 N.H. at 682, 683. The Court held that the 2007 transaction "is the 'purchase' or 'transfer' of Home's obligation to provide contribution and/or CIC's right to enforce this obligation, within the meaning of RSA 402-C:34, IICb )." Id. at 683. In light of the statutory purpose "to prevent debtors of insolvent insurers from acquiring claims for use as setoffs to reduce their obligations to the detriment of the insurer's creditors," the Court held that CIC's setoff should be disallowed. Id. The Three Sets of Claims Procedures In its brief, CIC refers to three sets of procedures concerning claims. CIC's presentation is inaccurate in many respects and neglects the actual language of the procedures, so the Liquidator provides the following, more detailed summary: 3

10 1. The Claims Procedures Order. The Restated and Revised Order Establishing Procedures Regarding Claims Filed with The Home Insurance Company in Liquidation issued by the Superior Court on January 19, 2005 (the "Claims Procedures Order"; App. 32) is a restated and revised version of an order originally entered December 19,2003. The Claims Procedures Order was necessary because the provisions of the Insurers Rehabilitation and Liquidation Act, RSA 402-C ("Act"), concerning claims are somewhat skeletal, particularly with respect to the process for resolving disputes. See RSA 402-C:37 (claim filing), :38 (proofs of claim), :45 (claims report), :41 (disputed claims). The Liquidator accordingly moved the trial court for an order to govern procedures. App. 104, 105 (concerning the original order). The Claims Procedures Order applies generally to claims against Home filed in the liquidation. See 3 (App. 38). It provides for the filing of proofs of claim ( 4-5; App. 39), the Liquidator's determination and redetermination of the claims ( 6-7; App ), disputed claim proceedings before the Referee or Court regarding the claims ( 8-19; App ), and motions to recommit ( 20; App. 52). It does not provide for persons other than the Liquidator to be involved in determining claims, although it provides that persons directly affected, including reinsurers with a contractual right to interpose defenses, may seek leave to intervene if a disputed claim proceeding is commenced. 9(b) (App. 43). 2. The Claims Protocol. The Claims Protocol addresses a subset of claims against Home - those of the AFIA Cedents. As noted above, CIC reinsured Home with respect to insurance and reinsurance contracts known as the "AFIA Treaties" that Home entered in connection with the American Foreign Insurance Association in the United Kingdom. Home I, 154 N.H. at Before Home's liquidation, CIC handled and paid the AFIA Cedents' claims directly. Id. Home's liquidation changed things, as the Liquidator was required by the 4

11 Act to handle claims against Home, and CIC was required to pay the Liquidator for allowed claims. See id.; Liquidator's Appendix ("Liq. App.") at 2-3. In light ofcic's historic involvement in the adjustment of AFIA claims, the specialized nature of the AFIA claims (principally governed by English law), CIC's rights under the insolvency clauses in its agreements with Home, its role as reinsurer of the AFIA claims under those agreements, and changes in claim handling resulting from the application ofthe Act and the Claims Procedures Order, the Liquidator sought to reach agreement with CIC to provide for the ongoing involvement of CIC in the handling ofthe AFIA claims. Liq. App The Liquidator and CIC accordingly entered a letter agreement dated August 6, 2004 concerning the "Administration of AFIA Business" referred to as the "Claims Protocol." App. 2. The Superior Court approved the Claims Protocol on November 12, 2004 on motion by the Liquidator. Liq. App. 1,29. (CIC did not file a response to the motion.) The Claims Protocol establishes "a protocol for the ongoing handling by [CIC] of claims in respect of AFIA Liabilities." App. 2. Its introductory paragraphs state that, under 1984 agreements between Home and CIC's predecessor Insurance Company of North America, "CIC undertook certain management, administrative and service obligations" in respect of the AFIA Treaties; that "[t]he insolvency of Home creates a number of administrative issues that need to be addressed and this letter is intended to describe the process for the continued performance by CIC of its obligations" under the 1984 agreements; and that, accordingly, "it is desirable to put in place mechanisms and processes to ensure the due, proper, orderly and consistent handling of Claims (as defined below) by and among HICIL and CIC." Id. (emphasis added). Contrary to CIC's arguments (CIC Br. 5, 12), the Claims Protocol does not apply to CIC's contribution claims against Home and related setoffs. It is concerned with the claims of 5

12 the AFIA Cedents against Home. It specifically defines "Claim" as "an inward reinsurance claim against HICIL in respect of an AFIA Liability presented in a POC,,,1 and "Claimant" is defined as "a person submitting a Claim in the HICIL liquidation." App. 3. CIC's contribution claims such as the PECO claim are not "inward reinsurance claims" against Home "in respect of an AFIA Liability." They are neither reinsurance claims nor related to AFIA. The Claims Protocol provides for the submission and adjustment of the AFIA claims through a process whereby CIC reviews the Claims and recommends determinations to the Liquidator, who is to issue Notices of Determination or Redetermination. App. 4 (~~ 2.3, 2.4, 2.9,2.10). It recognizes that the Liquidator and CIC might not agree over the proper resolution of an AFIA Cedent's claim against Home and, to address that situation, it provides for confidential arbitration between the Liquidator and CIC if they disagree over the resolution of a Claim. App. 4-5 (~~ , ). It also provides for CIC to participate in and raise defenses available to Home in disputed claim proceedings between the Claimant and the Liquidator over the Claim. App. 6-7 (~~ ). As reinsurer of Home, CIC is obligated under the reinsurance contracts to pay Home the amount of the AFIA claims allowed in the Home liquidation. See Home I, 154 N.H. at The Claims Protocol accordingly provides for reports and remittances. App. 8. In particular, paragraph 3.3 provides for CIC to provide monthly statements of amounts payable by CIC based on determined AFIA claims and its claimed setoffs:! An "inward" reinsurance claim is a claim by an entity reinsured by Home against Home, as contrasted to an "outward" claim by Home against its own reinsurer. 6

13 Within thirty (30) business days after the end of each month, CIC shall (a) provide HICIL with a statement showing (i) all amounts payable by CIC to HICIL pursuant to paragraphs 2.4,2.8,2.10,2.19 and 3.7e] for the preceding month; (ii) the amount of funds paid by CIC with respect to such payables; and (iii) any amounts claimed in offset in accordance with paragraph 3.4 against amounts due to HICIL, together with sufficient detail and an explanation as to the basis for the asserted offset; and (b) subject to the proviso to this paragraph, effect a wire transfer to such account as may, from time to time, be designated by the Liquidator for the balance. App. 8 (emphasis added). In language omitted from CIC's brief, the paragraph continues with express reservations of rights by the Liquidator and CIC: CIC agrees and acknowledges that the Liquidator fully reserves all rights in relation to any offset asserted. CIC reserves (and the Liquidator acknowledges that CIC so reserves) all rights in respect of any payments made, including as to amount and as to the obligation of CIC to make the same; Id. (Emphasis added). A "proviso" follows to address situations where a Claimant is disputing a determination: PROVIDED THAT, where the Claimant has submitted a [R]equest for Review or an Objection in respect of a Claim disputing the quantum of the Claim or elements of it, CIC shall make remittance in respect of any portions of the Claim allowed in full or agreed between CIC and the Claimant. CIC shall not be obliged to make remittance in respect of the disputed amount unless and until the relevant proceedings settle the disputed amount or it is negotiated and agreed between the claimant and CIC with the concurrence of the Liquidator, in which event remittance will be made in such amount within thirty (30) business days after the month next following such settlement or agreement. App. 8-9 (emphasis added). Contrary to CIC's arguments (see CIC Br. 5, 14 - which omit the first sentence of the proviso), the proviso does not address disputes concerning CIC's claims against Home or between the Liquidator and CIC. It is limited to situations where the "Claimant" (i.e., AFIA Cedent) is disputing the proper allowance of a "Claim" (i.e., AFIA claim 2 The cited paragraphs provide for CIC to make remittance based upon the final determination of the Claim; the paragraphs refer to the particular stages of the process at which a claim may be determined (i.e. Notice of Determination (~2.4), Liquidator/CIC arbitration followed by Notice of Determination (~2.8), Notice of Redetermination (~ 2.10), and disputed claim proceeding (~2.19». Paragraph 3.7 provides that the Liquidator is not obligated to defend a disputed claim proceeding with a Claimant ifcic does not participate, and that the result in such case will be binding on CIC. 7

14 against Home). It specifies in the first sentence that CIC only needs to make payment to the Liquidator for parts of a "Claim" that have been finally determined and clarifies in the second sentence that the disputed part is not a basis for payment until it has been finally resolved. Setoffs are addressed in paragraph 3.4, which provides: "Notwithstanding anything herein to the contrary, payments to HICIL shall be net of setoff in compliance with N.H. RSA 402-C:34 or otherwise allowed by New Hampshire law." App. 9 (emphasis added). The Claims Protocol concludes with general reservations of rights by both HICIL and CIC. App (~~ 7.1, 7.2). 3. The Joint Report. The Joint Report addresses another subset of claims against Home - the contribution/subrogation claims filed by CIC. App CIC submitted four proofs of claim in the Home liquidation covering potential contribution and/or subrogation claims with respect to policyholders insured by both Home and CIC. See App. 14 (~~ 4,6), 16. Those proofs of claim became the subject of disputed claim proceeding 2005-HICIL-14. See App. 13. After a scheduling conference before the Referee, the Liquidator and CIC had discussions and submitted the Joint Report dated March 31, Id. The Joint Report provided for an agreed proposed confidentiality order and a process for the presentation and initial determination of individual claims based on which CIC asserts an offset. App. 13 (~3), 14 (~6). Specifically, it provides for CIC to submit the claim, for CIC and the Liquidator to exchange certain documents, for the Liquidator to request further substantiation of the claim, for the Liquidator to provide a statement of reasons for disallowing the claim (if he does), and for the parties to jointly seek an order from the Referee that a disallowed claim be deemed in a disputed claim proceeding and treated as such under the Act and the Claims Procedures Order. App (~ 6). 8

15 The Joint report is not comprehensive. It concerns only the initial submission and determination of CI C' s claims and does not address the consequences of a denied claim or setoff. It also concludes with an express reservation of rights: CIC and the Liquidator reserve all rights as against each other.... For the avoidance of doubt, use of any particular word or language in this Joint Report shall not be used to advantage or disadvantage either party in connection with its reservation of rights, including with respect to the procedural status of the claims. [App. 15 (~ 7)] The Assertion and Determination of CIC's PECO Claim In light of CIC's ongoing assertion of setoffs of claims against amounts due Home, the Liquidator sent CIC a letter dated July 9, 2007, advising CIC that the Liquidator would seek to recover interest from CI C on account of improper setoffs. App. 87. The letter stated: CIC's asserted setoffs are delaying payment of amounts otherwise due to the Liquidator. To the extent those setoffs are found to be improper, either because the underlying claim is unfounded in whole or part or because the setoff is not permitted under New Hampshire law, the Home estate is being deprived of the use of amounts CIC should have paid to the Liquidator. In the circumstances, CIC is obligated to pay interest on these improperly withheld amounts. [App.88] On August 29,2007, CIC presented its claim regarding PECO to the Liquidator. App.77 (~1). CIC used the PECO claim as a setoff to reduce its payments to the Liquidator beginning August 29, App.60. The $8 million PECO claim is included in the amounts under "CIC" in the "OTHER SET -OFF" section of its monthly statements. App. 60; see, ~., App (July, August, and September 2007 statements). In a letter dated October 12,2007, the Liquidator disagreed with and disallowed CIC's setoff of its PECO claim and reserved all rights with respect to other issues concerning the claim. App. 80; see App. 78 (~2). In accordance with paragraph 6 of the Joint Report, the letter requested that CIC join in a request to deem CIC's asserted setoff a matter in a disputed claim proceeding and treated as such. App

16 On October 18,2007, the Liquidator and CIC jointly requested that the issue be deemed a matter in a disputed claim proceeding and treated as such. App. 78 (~ 4) (the "Joint Request"). The Referee granted the Joint Request on October 23, App. 83. The Liquidator and CIC then litigated the matter before the Referee, the Superior Court, and the Supreme Court. On May 7, 2009, the Supreme Court ruled that setoff of CIC's claim regarding PECO against amounts due to Home was impermissible because the 2007 transaction was "the 'purchase' or 'transfer' of Home's obligation to provide contribution, and/or CIC's right to enforce this obligation, within the meaning ofrsa 402-C:34, II(b)." Home IV, 158 N.H. at 683. The Court denied CIC's motion for reconsideration on June 10,2009. App.57. CIC removed the PECO setoff from its monthly statement and paid the $8 million to the Liquidator on August 3, SUMMARY OF ARGUMENT The Liquidator is entitled to interest under RSA 524: I-a on the $8 million that CIC began withholding in 2007 based on the PECO setoff found improper in Home IV. The disputed claim proceeding commenced by the Liquidator to challenge the setoff and obtain the withheld monies was an "action on a debt or account stated" within RSA 524:1-a. The common meaning of the statutory language refers to a legal or judicial proceeding to enforce or protect a right, and the Liquidator's proceeding sought to enforce or protect Home's right to reinsurance proceeds CIC acknowledged were due. The Liquidator sought to collect the debt by defeating the setoff CIC was using to avoid payment. CIC's position that the disputed claim proceeding was not "on a debt" because the debt itself was not disputed by CIC leads to the unreasonable result that interest is denied where a 3 The PECO setoff had not been removed when the Liquidator's motion for interest was filed on June 29, 2009, and so this date is not reflected in the record. It should not be disputed. 10

17 party refuses to pay an acknowledged debt for an unrelated reason. The only reason the PECO setoff at issue mattered was because it enabled CIC to avoid paying its debt. The Legislature sought to provide interest where a party obtains money through litigation even in procedurally unusual cases such as a disputed claim proceeding in Home's liquidation. CIC's narrow construction frustrates that intent and disregards the underlying purpose of the interest statutes to compensate a party that is forced to litigate for the loss of use of funds during the litigation. Here, CIC withheld money based on a setoff prohibited by RSA 402-C:34, II(b), and interest is proper to compensate for the Home estate's loss of use of the amount due but not paid. CIC's argument that the Claims Protocol's silence on interest demonstrates an intent to waive interest disregards the principle that applicable statutes are incorporated into a contract unless expressly waived. In any event, CIC mischaracterizes the Claims Protocol in contending it "comprehensively" addresses setoffs and disputes between the Liquidator and CIC. The Claims Protocol provides procedures for the claims of AFIA Cedents, as is apparent from its definitions of "Claim" and "Claimant." It addresses disputes between CIC and the Liquidator only in the limited context of determining the AFIA Cedents' claims, not CIC's claims. It refers to CIC's claims and setoffs only in providing for reporting and remittances, and it is silent as to (a) procedures for resolving disputes about those claims and setoffs, and (b) the consequences of improper claims or setoffs, such as statutory interest. Such issues were reserved by the express reservation of rights in paragraph 3.3 of the Claims Protocol that CIC fails to mention. CIC's argument is not assisted by the Joint Report. That agreement is limited to procedures for the substantiation and initial determination ofcic's claims. It also is silent on the consequences of improper claims and setoffs. Those issues are left to otherwise applicable 11

18 law. The lack of "comprehensiveness" is again shown by an express reservation of rights not referred to by eie. The Claims Procedures Order is not an agreement that could waive anything. Interest is properly awarded from October 12,2007, when the Liquidator sent CIC a letter disagreeing with and disallowing CIC's PECO setoff. The Liquidator had previously advised CIC that he sought interest where CIC asserted an improper setoff. CIC's argument that the Claims Protocol included an agreement that payment is only due after disputes are resolved mischaracterizes the Claims Protocol. The proviso cited by CIC addresses the time when CIC must make payment on AFIA claims that are still being disputed with the AFIA Cedent. As is apparent from its use of the defined terms "Claims" and "Claimant," and from the first sentence omitted from eic's quotations, the proviso has nothing to do with disputes between the Liquidator and CIe over CIC's claims and related setoffs. If statutory interest is not available, then interest should be awarded on grounds of unjust enrichment. CIC was enriched at Home's expense by its withholding of amounts due to Home based on the improper setoff. CIC obtained this enrichment by its affirmative acts in entering the 2007 agreement with PECO and asserting the setoff against Home. The setoff was wrongful because it was prohibited by RSA 402-C:34, II(b). It would be unconscionable to allow CIC to retain the benefit of its assertion of the improper PECO setoff. That is contrary to the purpose of the statute to prevent the acquisition of setoffs to the detriment of Home's creditors. It is also contrary to the overall purposes of RSA 402-C to protect creditors by reserving assets for them and obtaining full payment from reinsurers despite Home's insolvency. 12

19 STANDARD OF REVIEW The interpretation of a statute is a question oflaw subject to de novo review. Home IV, 158 N.H. at 681. The interpretation ofa contract is also a question oflaw subject to de novo review. Birch Broad., Inc. v. Capitol Broad. Corp., Inc., 161 N.H. 192, 196 (2010). ARGUMENT The Liquidator is entitled to statutory interest on the $8 million due Home in 2007 but improperly withheld until 2009 based on CIC's assertion of the PECO setoff prohibited by RSA 402-C:34, II(b). The disputed claim proceeding challenging the setoff is an action on a debt or account stated, and interest is thus proper under RSA 524: I-a. The Liquidator did not waive interest in the Claims Protocol or Joint Report, which contain express reservations of rights that reserve such issues. Even if statutory interest were not available, however, interest should be awarded on the amounts withheld by CIC because CIC was unjustly enriched by its assertion of the prohibited setoff. I. CIC Is Required To Pay Statutory Interest On The Amounts Due But Withheld Based On The Improper Setoff. The Superior Court properly awarded statutory interest on the $8 million withheld by CIC based on the setoff held improper in Home IV. Under RSA 524: I-a, "a plaintiff who prevails in an action for debt or account is entitled to pre-judgment and post-judgment interest from [demand or] the commencement of suit until the defendant makes payment." Nault v. N & L Dev. Co., 146 N.H. 35,37 (2001). See J & M Lumber & Const. Co., Inc. v. Smyjunas, 161 N.H. 714, 729 (2011) (noting that "[u]nder RSA 524:1-a, if a demand has been made before suit, interest accrues from the time ofthe demand"). Here, the Liquidator demanded the PECO claim setoff be removed on October 12,2007, commenced disputed claim proceedings to challenge the setoff, and after litigation successfully obtained a judgment that the setoff was improper so that 13

20 CIC was required to pay the amount due. Accordingly, as the Superior Court held, statutory interest is due from October 12,2007 to the date of payment. CIC's arguments based on the Claims Protocol misconstrue that agreement, which says nothing about interest. A. Interest is Proper under RSA 524:1-a Because the Litigation Sought to Collect a Debt Owed by CIC. As the Superior Court correctly held, the essence of this matter - despite its unusual procedural posture - is a debt dispute. App. 111, 116. The Liquidator commenced the disputed claim proceeding concerning CIC's PECO claim to recover money for the Home estate by invalidating a setoff that CIC was using to withhold money due to Home under the CIC/Home reinsurance agreements. The disputed claim proceeding, including the motion to recommit in the Superior Court and the appeal in this Court, was thus an action on a debt or account stated within RSA 524: I-a. CIC's contrary arguments fail under applicable principles. [The courts] are the final arbiters of the legislature's intent, as expressed in the words of the statute considered as a whole. [They] first examine the language of the statute, and, where possible, ascribe the plain and ordinary meanings to the words used. When a statute's language is plain and unambiguous, [they] need not look beyond it for further indication of legislative intent, and [they] will not consider what the legislature might have said or add language that the legislature did not see fit to include. However, if a statute is ambiguous, [they] consider the legislative history to aid [their] analysis. [Their] goal is to apply statutes in light of the legislature's intent in enacting them, and in light of the policy sought to be advanced by the entire statutory scheme. N.H. Ass'n of Counties v. Commissioner, N.H. Dept. of Health & Human Servs., 156 N.H. 10, 15 (2007) (citations omitted). The plain meaning of the statute encompasses the disputed claim proceeding, and awarding interest here furthers the legislative intent of RSA 524: I-a and the purposes of the statutory scheme. 1. The Liquidator'S disputed claim proceeding is an "action on a debt or account stated" because it seeks to collect on the debt concededly due from CIC by invalidating the setoff that CIC was using to withhold payment. See CIC Bf. 8-9 (noting that CIC's obligation is 14

21 "undisputed"). The term "action" in the statute merely refers to a legal proceeding to enforce or protect a right. See Webster's Third New International Dictionary 21 (unabridged ed. 2002) (definition "a(1): a legal proceeding by which one demands or enforces one's right in a court of justice (2): a judicial proceeding for the enforcement or protection of a right, the redress or prevention of a wrong, or the punishment of a public offence."). The proceeding before the Referee (and then before the Superior Court and then this Court) plainly qualifies as a legal or judicial proceeding. It is "on a debt or account stated" because it seeks to enforce or protect Home's right to collect CIC's acknowledged debt by removing setoff as an obstacle to payment. The debt itself was reflected in the account stated in CIC's monthly statements. The procedure followed by the Liquidator reflected the circumstances of Home's liquidation. Absent liquidation, if a reinsurer had refused to pay Home based upon an asserted setoff that Home viewed as improper (~, for lack of mutuality), Home would have brought an action against the reinsurer to collect the debt. Such an action would clearly have been an action on a debt or account within RSA 524: I-a even though the only litigated issue was the propriety of the setoff. Home's liquidation called for a different process, as claims against Home are required to be filed in the liquidation, see RSA 402-C:37 and Claims Procedures Order 4 (App. 39), and CIC had asserted its PECO claim in the 2005-HICIL-14 disputed claim proceeding as required by the Joint Report. The Liquidator accordingly brought the dispute over the propriety of CIC' s PECO setoff directly before the Referee by the Joint Request. This procedural step, however, does not change the essential nature of the action as one to collect a debt. The final disallowance ofcic's asserted PECO setoff in Home IV was the equivalent of an award of money - the $8 million due but improperly withheld based on the setoff. Indeed, CIC paid that 15

22 amount after denial of its motion for reconsideration. Accordingly, interest was properly awarded on the wrongfully withheld amount under RSA 524:1-a. 2. CIC contends that "setoff is not an action" (CIC Br. 9, 11), but it focuses on the wrong procedure. The "action" for purposes ofrsa 524:1-a is not CIC's assertion of the PECO setoff but the Liquidator's challenge to that setoff by the disputed claim proceeding. The cases cited by CIC are irrelevant. They concern whether the setoff itself should be considered something other than an "action" so that it may be asserted notwithstanding a liquidation injunction, Koken v. Legion Ins. Co., 900 A.2d 418, 423 CPa. Commw. Ct. 2006), or notwithstanding a procedural failure that would preclude an attempt to collect on the underlying claim, Long Beach Trust Co. v. Warshaw, 190 N.E. 659, 660 (N.Y. 1934).4 The Superior Court, however, did not hold that RSA 524:1-a applies because CIC asserted a setoff; it awarded interest under the statute because the disputed claim proceeding brought by the Liquidator was akin to a debt dispute. 3. CIC contends that the disputed claim proceeding was only about the PECO setoff, as distinct from CIC's debt obligation to Home. CIC Br. 10. This distinction is too fine. The only reason the setoff mattered was because CIC was using it to withhold monies otherwise due to Home - that is, because it prevented payment of the debt. Setoff is merely a procedural device in the nature of a counterclaim or defense to defeat or diminish the payment of a debt. See Hathorn v. Loftus, 143 N.H. 304, (1999); Varney v. General Enolam, Inc., 109 N.H. 514, (1969); RSA 515:7. An action brought to obtain payment of a debt by defeating defenses to payment is an "action on a debt" within the statute. 4 These questions are beside the point here, as the Act specifically permits assertion of setoff, subject to certain exceptions, in RSA 402-C:34, and eie has filed proofs of claim for its contribution claims. 16

23 4. ele argues that "[a]n action on a debt involves a dispute regarding either the recoverability of amounts claimed to be due, and/or the correct amount of the debt owed." ele Br. 11. ele offers no support for this cramped reading, which produces the absurd result of denying interest where a party agrees a debt is due but refuses to pay it for an unrelated reason. The legislative purpose properly encompasses all situations where a person does not pay a debt, whether or not the debt is itself disputed. RSA 524: I-a and: I-b must be construed to "lead to reasonable results and effectuate the legislative purpose of the statute." Nault, 146 N.H. at 38 (quoting State v. Farrow, 140 N.H. 473, 475 (1995)). The purpose of these statutes is remedial, and the Legislature sought to avoid the type of formalistic distinction advanced by elc. The purpose of the General Court in enacting RSA 524, Section I-a and I-b... [in] 1957, was to clarify and simplify the existing law and to make plain that in all cases where the trial court awarded money to the party entitled to be compensated, interest at the legal rate is to be added to the award, either from the date upon which the parties had contracted that interest was due, or, "in the absence of a demand", from the date upon which legal action was started. The law actually has always recognized that the aggrieved party was entitled to such interest in all cases, but different and complicated procedural rules had developed that resulted in interest being lost in some cases. Nault, 146 N.H. at 38 (italics in original) (quoting N.H.S. Jour (1963)).5 Here, the Liquidator with elc's agreement commenced proceedings pursuant to Joint Report ~ 6. App See App. 78, 83. After litigation before the Referee, the Superior Court, and this Court, it was finally adjudged that CIC's setoff was invalid. Home IV, 158 N.H This judicial decision mandated that CIC stop withholding the $8 million otherwise due to the Home estate. It was the equivalent of an award of money; only then did CIC pay the $8 million. CIC's argument that the procedure followed here, shaped by the demands of liquidation, took the matter outside 5 The 1963 amendment was specifically intended to overrule the decision in Chagnon v. Union-Leader Com., 104 N.H. 472 (1963), where the Court narrowly construed the types of actions encompassed by RSA 524:I-b. See N.H.S. Jour. 479 (\963). 17

24 RSA 524: I-a is contrary to the Legislature's intent to avoid loss of interest due to fine procedural distinctions. 5. CIC disregards the fundamental purpose of interest statutes: to compensate a party forced to pursue litigation for the loss of use of withheld funds. See In the Matter of Giacomini, 151 N.H. 775, (2005) (an award of interest "respects first and foremost the time value of money"; "Where the petitioner did not have access to the payments when they became due, she did not have the opportunity to use or invest the money that was adjudged to be hers."); Linteau v. Gauthier, 142 N.H. 460,461 (1997). (.noting- "the legislative - -purpose - in authorizing - interest - to 'provide compensation for the loss of use of money damages"') (quoting Metropolitan Prop. & Liab. Ins. Co. v. Ralph, 138 N.H. 378, 385 (1994)). Here, crc withheld payment of amounts due to the Liquidator based on the improper PECO setoff. Home's estate was deprived of $8 million during the proceedings before the Referee, the Superior Court, and this Court necessary to determine that the setoff was prohibited by RSA 402-C:34, II(b). The improper setoff delayed the Liquidator's collection of this reinsurance and deprived the Home estate and its creditors of investment income. An award of interest serves the statutory purpose of compensating Home's estate, and it provides appropriate incentives concerning the assertion of future setoffs. 6 B. The Parties' Procedural Agreements Are Not "Comprehensive," and Their Silence on the Subject ofinterest Does Not Waive Statutory Interest. crc's principal argument is that the parties' silence regarding interest in the Claims Protocol and Joint Report somehow shows an intent that there be no interest. crc essentially contends that, by silence, the Liquidator agreed that crc could assert invalid setoffs without 6 If CIC can withhold money based on invalid or improper setoffs without having to pay interest on the amounts withheld when the Liquidator prevails in litigation, then CIC has every incentive to simply assert setoffs and see if the Liquidator challenges them. It benefits by retaining the money, and the only cost is potential litigation expense. 18

25 consequence. This argument is backwards. Existing laws such as RSA 524: I-a are generally incorporated into a contract unless waived by express provision: Except when a contrary intention is evident, the parties to a contract... are presumed or deemed to have contracted with reference to existing principles of law. An intention not to adopt existing law may be manifested by a contractual provision to such effect, and in most jurisdictions, the intent to modify applicable law by contract is effective only when it is expressly exercised by a valid contractual stipulation. 11 R. Lord, Williston on Contracts 30:19, (4th ed. 2012). See Stankiewicz v. City of Manchester, 156 N.H. 587, 590 (2007) ("The laws which subsist at the time and place of the making of a contract, and where it is to be performed, enter into and form a part of it, as ifthey were expressly referred to or incorporated in its terms.") (quoting Trustees of Phillips Exeter Academy v. Exeter, 90 N.H. 472, 484 (1940)). CIC bears a high burden to show waiver, as it is well established that "[a] finding of waiver must be based upon an intention expressed in explicit language to forego a right, or upon conduct under the circumstances justifying an inference of a relinquishment of it." South Willow Properties, LLC v. Burlington Coat Factory, 159 N.H. 494, 499 (2009) (quoting N. Country Envtl. Servs. V. Town of Bethlehem, 146 N.H. 348, 354 (2001 )). The Superior Court thus correctly held that "[i]n the absence of an agreement to the contrary, the court must look to the statute providing for interest." App In any event, CIC misconstrues the agreements and ignores their express reservations of rights. Contrary to CIC's argument, the Liquidator and CIC did not "agree[] on comprehensive protocols for the resolution of disputed setoffs." CIC Br. 4. When interpreting a written agreement, [the courts] give the language used by the parties its reasonable meaning, considering the circumstances and the context in which the agreement was negotiated, and reading the document as a whole. Absent ambiguity, the parties' intent will be determined from the plain meaning of the language used in the contract. 19

26 Home 11,157 N.H. at 546 (quoting Czumak v. N.H. Div. of Developmental Servs., 155 N.H. 368,373 (2007)). 1. The Claims Protocol is not comprehensive but leaves unaddressed matters such as interest to future proceedings. CIC first contends that the Claims Protocol provides for the handling of claims and the resolution of disputes between the Liquidator and CIC, and that since the Claims Protocol does not provide for interest the parties intended that there be no interest. CIC Br. 12. However, the Claims Protocol does not concern CIC's claims against Home or address disputes between CIC and the Liquidator over such claims. Further, it is not "comprehensive," as it expressly reserves all rights as to matters not addressed. Like many contracts, the Claims Protocol addressed only those matters that needed to be addressed and on which agreement could be reached. It left other matters to be resolved under the law as determined in future proceedings. Because CIC baldly misconstrues and overstates the scope of the Claims Protocol and disregards its express reservation of rights, it is necessary to address it in some detail. 1. As an initial matter, CIC erroneously suggests that the Claims Protocol concerns claims generally. CIC Br. 5, 12. This is inconsistent with the Claims Protocol's intent and plain language, which is confined to AFIA Cedents' claims (except for the limited reporting and remittances section noted below). The Claims Protocol's introductory paragraphs state that it is to establish "a protocol for the ongoing handling by [CIC] of claims in respect of AFIA Liabilities... and in respect of AFIA License Business" as defined in the 1984 agreements between Home and CIC's predecessor. App.2. They provide that in light of Home's insolvency "it is desirable to put in place mechanisms and processes to ensure the due, proper, orderly and consistent handling of Claims (as defined below) by and among HICIL and CIe." Id. (emphasis added). The term "Claim" is expressly defined as "an inward reinsurance claim against HICIL in 20

27 respect of an AFIA Liability presented in a POC," and "Claimant" is defined as "a person submitting a Claim in the HICIL liquidation." App. 3. These provisions make unmistakably clear that the Claims Protocol addresses AFIA claims, not claims generally or CIC's claims in particular. CIC's assertions to the contrary disregard the express definitions of "Claim" and "Claimant", which are limited to AFIA claims and do not encompass CIC's claims against Home. See Crowley v. Town of Loudon, 162 N.H. 768, 772 (2011) ("Common usage does not control when, as here, the contracting parties have defined a term.") CIC's contribution claims such as the PECO claim are not "inward reinsurance claims" against Home "in respect of an AFIA Liability." They are neither reinsurance claims nor related to AFIA. 2. CIC also contends that the Claims Protocol- specifically Article 2 - provides procedures for disputes between CIC and the Liquidator generally. CIC Br. 5, 12. However, that article concerns the determination of "AFIA Liabilities." App.4. Consistent with the Claims Protocol's purpose to provide for CIC's involvement in the handling of "Claims" as defined, i.e., inwards AFIA claims against Home, the Claims Protocol only addresses disputes between CIC and the Liquidator concerning the proper determination of Claims submitted by the AFIA Cedents ("Claimants" as defined). See App. 4-6 (~~ , 2.12). The confidential arbitration process described in these paragraphs is limited to disputes over the proper determination of "Claims" and the resulting issuance of Notice of Determination or Redetermination to "Claimants." Id. That process has nothing to do with disputes over CIC's contribution claims or setoffs. It addresses the possibility that CIC - as the administrator of the AFIA claims on Home's behalf and reinsurer of the claims under the 1984 agreements - could recommend one determination, while the Liquidator - as the person charged by statute (RSA 21

28 402-C:41, :45) with determining claims against Home in liquidation - might disagree. In that case, there would be a need to resolve the dispute between the two parties acting for Home (CIC and the Liquidator) so that a common position could be taken in determining the claim as against the AFIA Cedent. 3. The Claims Protocol refers to CIC's claims and setoffs only in the reports and remittances provisions of Article 3. That article, however, merely provides for CIC to report amounts payable and amounts "claimed" in setoff and to make remittances to the Home estate based on the amounts payable reduced by setoffs that comply with law. App It does not address disputes over CIC's claims or setoffs or the consequences of an invalid claim or setoff. The Claims Protocol provides that the monthly statement will show (i) "all amounts payable by CIe to HICIL" on AFIA claims, (ii) the "amount of funds paid by CIC with respect to such payables", and (iii) "any amounts claimed in offset in accordance with paragraph 3.4 against amounts due to HICIL." App. 8 (Claims Protocol ~ 3.3(a)) (emphasis added). The payable amounts are CIC's reinsurance obligations on allowed AFIA claims, which trigger corresponding reinsurance obligations from CIC to the Home estate. See Claims Protocol ~~ 2.4, 2.8,2.10, 2.19 (CIC is to effect remittance on the basis of claims allowed at the various steps of the determination process); see also ~ 3.5 ("CIC will not be liable to make payment in respect of any AFIA Liability unless the relevant Claim has been allowed in the HICIL liquidation."). Those amounts are to be paid to the Liquidator on the date of the CIC statement on which they first appear - when CIC is to "effect a wire transfer" (Claims Protocol ~ 3.3(b)) - unless they are reduced by "amounts claimed in offset in accordance with paragraph 3.4." Claims Protocol ~ 3.3(a)(iii). 7 Paragraph 3.4 provides: "Notwithstanding anything herein to the 7 Paragraph 3.3 also includes the proviso on which CIC relies in connection with its assertion that payment is not due until disputes are resolved. That issue and the proviso are addressed at pages below. 22