Section 2.44 Abstention in Insurance Insolvencies Under Quackenbush v. Allstate Insurance Co.

• Library: Insurance Practice 2015

Approximately one year after the Wolfson v. Mutual Benefit Life Insurance Co., 51 F.3d 141 (8^th Cir. 1995), decision, the United States Supreme Court decided whether it was appropriate to remand a suit to state court involving an insolvent insurer based on the Burford v. Sun Oil Co., 319 U.S. 315 (1943), abstention doctrine. Quackenbush v. Allstate Ins. Co., 517 U.S. 706 (1996). Quackenbush involved a suit by the California Insurance Commissioner, as trustee for insolvent reinsureds, who brought suit in state court to recover reinsurance proceeds under common-law tort and contract theories. Id. The reinsurer removed the case, and the Commissioner moved for remand. Id. The United States district court remanded the action based on the Burford abstention doctrine. Id. The reinsurer appealed, and the Ninth Circuit vacated and remanded. Id. The Supreme Court granted certiorari and held in favor of the reinsurer, finding that federal courts have the power to dismiss or remand cases based on abstention principles only when the relief being sought is equitable or otherwise discretionary. A federal court may not abstain in a common-law action for damages. Id. The Court determined that the liquidator had not requested “discretionary relief,” id. at 730, and no “disputed issue of state law,” id. at 731, or other “exceptional circumstances” existed that allowed the district court to stay or remand the action under Burford. Id. at 716. See generally:

· Karl L. Rubinstein, Understanding the Quackenbush Decision, 11-16 Mealey’s Litig. Rep. Ins...