In re People

Finch, J.

Should interest be allowed in insolvency proceedings in addition to payment in full upon the proven claims of those whose policies were issued by the United States branch of a foreign insurance company prior to remitting the balance to the domiciliary receiver in Norway, is the question presented by this appeal. The court at Special Term allowed interest upon the ground that the United States branch was a separate entity and that interest was part of the debt.

Such facts, in brief, as are necessary to an understanding of the reasons for the decision follow. In 1916 the Norske Lloyd Insurance Company, Ltd., a Norwegian company, was authorized to do business in the State of New York. In 1922 the parent company became insolvent and insolvency liquidation was commenced in Norway, a domiciliary receiver there appointed and a liquidator in England. Pursuant to section 63 of the Insurance Law, the Superintendent of Insurance of the State of New York, as ancillary receiver, on the 3d day of May, 1922, took possession of all of the company’s assets in the United States, including a deposit of securities made with him and also with the Guaranty Trust Company under deeds of trust, and certain securities deposited in trust with the authorities of the State of Ohio, to pay the creditors of the American branch and remit the balance to the Norwegian receiver. The Superintendent of Insurance, in his report, divided the creditors into three classes: First, upon policies issued to residents or citizens by agencies of said insurance company doing business in the United States; second, upon policies issued by said insurance company outside of the United States to persons residing within the United States, and third, upon policies issued to nonresidents of the United States by foreign agencies of the insurance company. In Matter of People [Norske Lloyd Ins. Co.] (242 N. Y. 148) Chief Judge His cock, speaking for a unanimous court, held that the New York liquidator should pay the claims of the first class out of the assets in his hands and remit the balance, less expenses, to the Norwegian liquidator. It appears that the liquidator will have a fund sufficient to pay interest in full upon all the claims in class I and still remit upwards of one million dollars to the foreign liquidator. Furthermore, the remaining assets of this defunct corporation, including any balance sent from the United States, will be only sufficient to pay about thirty-six per cent of the face amount of other claims to the other creditors. All claims of creditors, both here and abroad, have a similar inception, namely, arising out of contracts of insurance.

Applicable to these facts are certain fundamental principles which are well settled. In the first place, we are not dealing with rights as between the creditors and the corporation, but with an equitable distribution of the assets of an insolvent corporation as between different classes, of creditors. Furthermore, when once these assets have come into the hands of the liquidator in New York, no creditor may thereafter obtain a specific lien through attachment. (Matter of People [City Eq. Fire Ins. Co.], 238 N. Y. 147. ) It has furthermore been finally established in the case at bar that these creditors in class I and no others are entitled to be paid 100 per cent of their claims, and that other creditors are to be remitted, upon proper safeguards, to the domiciliary receiver in Norway. (Matter of People [Norske Lloyd Ins. Co.], 242 N. Y. 148. ) This preference given to class I creditors is a statutory preference. (Ins. Law, §§ 27, 28, as added by Laws of 1919, chap. 382.) The wording of this statute is in most general terms. In consequence we should not hold that the underlying principles of equitable distribution of the assets of an insolvent corporation are to be disregarded unless in conflict with the general terms of the statute. Obviously the principle that equality is equity applies unless in conflict with the terms of the statute. (People v. American Loan & Trust Co., 172 N. Y. 371.) Were it not for the statute, all the assets should have been forwarded to the domiciliary receiver. Those who have dealt with the American branch should not be in a better position in this receivership than in a receivership involving creditors whose claims arise in different States of the United States or between different classes of creditors in this State; In either case no interest in addition to payment in full would be allowed to the first class as against subsequent classes. It follows that class I creditors hould not receive, as against the other classes of creditors, interest, during the time it has taken to wind up the company. To allow interest to our citizens who did business with the American branch is to discriminate not only against other creditors, but also against our own citizens who have done business with the foreign branch. Our conclusion is further fortified by considering that the capital of the parent company originally supplied the capital necessary to start the United States branch. While for certain purposes the American branch may be considered as if an entity in itself, the fact remains that it is not, and to so hold in a situation similar to the case at bar, except in so far as the wording of the statute requires (Ins. Law, §§ 27, 28, supra), would be taking the assets of the parent company away from the latter’s creditors without consideration.

It follows that the orders appealed from should be reversed, with ten dollars costs and disbursements, the motion to confirm the report of the referee and for the allowance of interest on class I claims denied, and the motion to set aside said report granted.

Dowling, P. J., and McAvoy, J., concur; Martin and O’Malley, JJ., dissent.