Pennsylvania Supreme Court Determines that Preliquidation Payments Made to Policyholders Do Not Constitute Voidable Preferences Under the Pennsylvania Insurance Liquidation Statute

On February 23, the Supreme Court of Pennsylvania ruled on an important insurance coverage question—one that has been addressed infrequently by courts throughout the country: Can the liquidator of an insolvent insurance company recover preliquidation claim payments that the insurance company made to its policyholders on the ground that the payments are voidable preferences?

In Ario v. Ingram Micro, Inc., __ A.2d __, 2009 WL 428450 (Pa. Feb. 23, 2009), a unanimous Supreme Court ruled that the liquidator of Reliance Insurance Company (Reliance) had no right to recover preliquidation claims payments made to Reliance's policyholders in the ordinary course of business. As only the third state supreme court ruling on this issue, and the first ruling in favor of policyholders, Ingram Micro is a significant and welcome decision for both policyholders and Pennsylvania-domiciled insurers. It promotes certainty and predictability in the payment of claims under insurance policies, and serves to minimize concerns a policyholder may have, when dealing with a Pennsylvania-domiciled insurer, that claim payments received within a year of the insurer being placed into liquidation will be subject to a statutory clawback.

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