WARRANTECH CONSUMER PRODUCTS SERVICES, INC., WARRANTECH HOME SERVICE COMPANY, WARRANTECH HOME ASSURANCE COMPANY, WCPS OF FLORIDA, INC., WARRANTECH AUTOMOTIVE, INC., WARRANTECH AUTOMOTIVE OF FLORIDA, INC., BUTLER FINANCIAL SOLUTIONS, LLC, A/K/A BUTLER FINANCIAL SOLUTIONS, INC., Objectors
RELIANCE INSURANCE COMPANY IN LIQUIDATION, (ANCILLARY MATTER TO IN RE: RELIANCE INSURANCE COMPANY IN LIQUIDATION, NO. 1 REL 2001); APPEAL OF: WARRANTECH CONSUMER PRODUCTS SERVICES, INC., WARRANTECH HOME SERVICE COMPANY, WARRANTECH HOME ASSURANCE COMPANY, WCPS OF FLORIDA, INC., WARRANTECH AUTOMOTIVE, INC., WARRANTECH AUTOMOTIVE OF FLORIDA, INC., BUTLER FINANCIAL SOLUTIONS, LLC, A/K/A BUTLER FINANCIAL SOLUTIONS, INC., Objectors
Submitted March 26, 2014.
Appeal from the order of the Commonwealth Court at No. 11 REL 2011, dated September 16, 2013. Judge: Bonnie Brigance Leadbetter, Judge.
For Judith Meyer, Participants: Judith Meyer, Pro Se.
For Warrantech Consumer Products Services, Inc.; Warrantech Home Service Company, et al, Appellant: Timothy Patrick Law, Esq., David M. Schlecker, Esq., Reed Smith, LLP.
For Insurance Commissioners of Pennsylvania and Michael F. Consendine, Appellee: Steven Burgess Davis, Esq., Nancy Livers Margolis, Esq., Karl Stewart Myers, Esq., Stradley, Ronon, Stevens & Young, L.L.P.
BEFORE: MR. JUSTICE BAER. CASTILLE, C.J., SAYLOR, EAKIN, BAER, TODD, McCAFFERY, STEVENS, JJ. Mr. Chief Justice Castille, Mr. Justice Eakin, Madame Justice Todd and Messrs. Justice McCaffery and Stevens join the opinion. Mr. Justice Saylor files a concurring opinion.
MR. BAER, JUSTICE.
This matter arises out of the liquidation proceedings of Reliance Insurance Company (" Reliance" ), where one of Reliance's policyholders, Warrantech Consumer Products Services, Inc. et al . (" Warrantech" ), submitted various proofs of claim seeking reimbursement under two insurance policies in which Reliance agreed to indemnify Warrantech for all future liabilities arising under certain warranty/service contracts Warrantech entered during the applicable policy period. The Commonwealth Court denied Warrantech's claims, holding that 40 P.S. § 221.21 of the Insurance Department Act applies to terminate coverage for all " risks in effect" under a policy of insurance no later than thirty days after the respective insurer enters liquidation, notwithstanding that the relevant policies of insurance were cancelled prior to the date of liquidation. For the reasons that follow, we affirm the order of the Commonwealth Court.
Warrantech is a company that markets and administers extended warranties and service contracts for vehicles, consumer products, and homes. Under the language of these warranty/service contracts (hereinafter " service contracts" ), Warrantech agrees to pay for repairs in the event that a customer experiences a product " breakdown" and makes a claim. Absent a claim arising from a breakdown, Warrantech has no contractual obligation to compensate for the service and repair of customer products.
Various states, excluding Pennsylvania, require companies like Warrantech to purchase service contract reimbursement insurance policies on the service contracts they sell. As Warrantech offered its service
contracts nationwide, in 1999 and 2000, it purchased from Reliance, a Pennsylvania corporation, service contract reimbursement insurance requiring Reliance to reimburse Warrantech for all sums that Warrantech became legally obligated to pay under the service contracts that Warrantech issued while the respective Reliance insurance policies remained in effect (hereinafter the " Reliance Policies" ). Warrantech paid Reliance approximately $30 million in premiums for these two policies. Brief of Objector at 14.
Pursuant to a provision in the Reliance Policies entitled " Effect of Cancellation," Reliance further agreed to indemnify Warrantech for its obligations under the service contracts issued during the respective policy periods even after cancellation of the Reliance Policies. Thus, when Warrantech cancelled coverage after 2000, Reliance remained obligated to reimburse Warrantech for consumer claims arising under all service contracts issued by Warrantech in 1999 and 2000.
On October 3, 2001, the Commonwealth Court placed Reliance in liquidation. Invoking 40 P.S. § 221.21, the court designated November 2, 2001 as the statutory cancellation of coverage date for all Reliance insurance policies. Accordingly, Reliance stopped reimbursing Warrantech for consumer claims arising under the service contracts and insured by the Reliance Policies as of November 2, 2001 (thirty days after Reliance entered liquidation). Warrantech, in turn, assumed responsibility for
paying claims that would have been paid by a " claims account" funded by Reliance, had it remained solvent.
Warrantech submitted various proofs of claim in the Reliance liquidation proceedings, seeking, inter alia, reimbursement for sums that Warrantech paid on service contracts as a result of claims arising from product breakdowns occurring after November 2, 2001 (the " Cancellation Issue" ). Warrantech also sought reimbursement for sums it paid out on certain service contract claims that Reliance approved but never reimbursed Warrantech for because these payouts were supposedly offset by monies that Warrantech received from various state guaranty associations (the " Offset Issue" ).
The Insurance Commissioner, acting as Liquidator, initially assigned Warrantech's claims against the estate of Reliance a priority level of (e). See 40 P.S. § 221.44. Warrantech objected, urging that its claims should receive the higher priority level of (b). On September 27, 2010, the Commonwealth Court sustained Warrantech's objections and remanded for valuation of its claims.
Following remand, the Liquidator issued Notices of Determination (NODs), assigning a zero value to each of Warrantech's proofs of claim against the estate of Reliance. With regard to the Cancellation Issue, the Liquidator concluded that Section 221.21 rendered Warrantech's claims valueless as they were for losses that occurred after the statutory cancellation of coverage date, November 2, 2001. Warrantech objected to the Liquidator's NODs assigning a zero value to its claims, and the Commonwealth Court appointed a referee to review the case. The referee issued a report and recommendation concluding, inter alia, that with respect to the Cancellation Issue, the Liquidator appropriately valued Warrantech's claim against the estate of Reliance at zero. The referee further recommended that the Commonwealth Court value Warrantech's claim against Reliance regarding the Offset Issue at $700,194.
On May 30, 2013, Warrantech timely filed an exception to the referee's report and recommendation with respect to the Cancellation Issue, contending that, notwithstanding Section 221.21, its claims for reimbursement of sums that it paid on service contracts after November 2, 2001 should be valued at $11,900,499.
In a single-judge memorandum decision, the Commonwealth Court adopted the referee's recommendations in whole. The court agreed with the referee that Section 221.21 operates to relieve Reliance of all liability to indemnify Warrantech under the service contracts for claims arising from product breakdowns that occurred after November 2, 2001. The court observed that based on the plain language of Section 221.21 (see supra note 7), all insurance policies with " risks in effect" at the time a ...