In re Liquidation of Legion Indemnity Co.

2023 IL App (1st) 211370
No. 1-21-1370
Opinion filed May 12, 2023
Fifth Division
______________________________________________________________________________

IN THE
APPELLATE COURT OF ILLINOIS
FIRST DISTRICT
______________________________________________________________________________
In re LIQUIDATION OF LEGION INDEMNITY ) Appeal from the
COMPANY ) Circuit Court of
) Cook County
(Dana Popish Severinghaus, in Her Official Capacity as )
Director of the Department of Insurance, Acting Solely in )
Her Capacity as the Statutory and Court-Affirmed )
Liquidator of Legion Indemnity Company, )
) No. 02 CH 6695
Liquidator-Appellee, )
)
v. )
)
Catalina Holdings (Bermuda) Limited, ) Honorable
) Celia G. Gamrath,
Claimant-Appellant). ) Judge presiding.

JUSTICE NAVARRO delivered the judgment of the court, with opinion.
Presiding Justice Delort and Justice Lyle concurred in the judgment and opinion.

OPINION

¶1 After being found insolvent, Legion Indemnity Company (Legion) began undergoing

court-ordered liquidation. During the liquidation proceedings, the director of the Department of

Insurance, acting solely in his capacity as the statutory and court-affirmed liquidator of Legion

(Director), demanded arbitration against Catalina Holdings (Bermuda) Limited (Catalina), who
No. 1-21-1370

had assumed responsibility for multiple reinsurance treaties entered into with Legion, for amounts

allegedly owed under the treaties. Catalina counterclaimed for unpaid premiums. The arbitration

panel rejected the claims on behalf of Legion and awarded Catalina the unpaid premiums as well

as attorney fees, costs, and interest, if the award was not timely paid. After having that award

confirmed by a federal court and converted into a judgment, Catalina filed claims in the circuit

court to have its award paid. Ultimately, the circuit court allowed Catalina’s claims and determined

that the unpaid premiums as well as the attorney fees, costs, and arbitration interest were claims of

a general creditor. As a result, Catalina’s claims were afforded the seventh highest priority in the

Illinois Insurance Code’s priority distribution scheme of assets from the estate of an insurance

company undergoing liquidation. See 215 ILCS 5/205(1) (West 2020). In addition to allowing

Catalina’s claims, the court denied Catalina statutory postjudgment interest under section 2-1303

of the Code of Civil Procedure (735 ILCS 5/2-1303 (West 2020)).

¶2 Catalina now appeals the circuit court’s order, contending that, based on the plain language

of the Insurance Code’s priority distribution scheme, its claim solely for attorney fees, costs, and

arbitration interest should be deemed a cost and expense of administration (215 ILCS 5/205(1)(a)

(West 2020)), the highest priority of the Insurance Code’s priority distribution scheme.

Additionally, Catalina posits that it was entitled to statutory postjudgment interest on its arbitration

award that was converted into a judgment under section 2-1303 of the Code of Civil Procedure

(735 ILCS 5/2-1303 (West 2020)). For the reasons that follow, we affirm the circuit court of Cook

County.

¶3 I. BACKGROUND

¶4 A. Legion’s Liquidation

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¶5 Legion was an insurance company licensed in the state of Illinois. Between 1998 and 2001,

Legion entered into multiple quota-share reinsurance treaties with Alea Group Limited and related

entities (the Alea Entities), under which the Alea Entities agreed to reinsure and indemnify Legion

for a portion of certain business written or assumed by Legion. In April 2002, the Director believed

that Legion was financially impaired and filed a complaint for an order of conservation against it.1

Based on the complaint, the circuit court entered an order of conservation against Legion, resulting

in the Director taking possession and control of Legion. Subsequently, the Director filed a

complaint seeking an order of liquidation with a finding that Legion was insolvent.

¶6 In April 2003, the circuit court found that Legion was insolvent and entered an order of

liquidation. That order affirmed the Director as the statutory liquidator and provided him with

various powers listed in the Insurance Code. 2 See, e.g., 215 ILCS 5/191, 193 (West 2002). One

such power included the Director’s ability to “bring any action, claim, suit, or proceeding ***

against any other person with respect to that person’s dealings with [Legion].” Id. § 193(3). The

court’s order also vested the Director “with the right, title and interest in all funds recoverable

under any insurance policies, and any treaties and agreements of excess insurance or reinsurance”

entered into by Legion. In addition, the Director had various obligations, including providing

timely written notice to reinsurers of the pendency of a claim against Legion indicating the policy

or bond reinsured. Id. § 193(8)(b). As a result of the court’s order of liquidation, an estate was

created comprised of all the assets and liabilities of Legion. Id. § 191.

¶7 Throughout the next several years, there were various court-ordered claim deadlines.

Eventually, more than 2200 proofs of claims were timely filed in the liquidation proceedings,

1
At the time, the Director was Nathaniel S. Shapo.
2
At the time, the Director was J. Anthony Clark.

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consisting primarily of priority (g) claims (claims of general creditors). Meanwhile, all priority (a)

claims—those for costs and expenses of administration—were paid on an ongoing basis. By

January 2015, the circuit court had approved a 100% distribution on all timely filed claims in the

liquidation proceedings. Because Legion’s estate had sufficient assets remaining, the court set a

new deadline for any additional claims to be filed in the matter. Over the next few years, the court

continued to approve distributions to claims based on the priority distribution scheme of the

Insurance Code.

¶8 B. Catalina and Legion

¶9 In 2009 and 2014, Catalina bought the Alea Entities. Based on these acquisitions, Catalina

assumed responsibility for the various reinsurance treaties that the Alea Entities had entered into

with Legion. These reinsurance treaties contained mandatory and binding arbitration clauses for

any dispute arising out of the reinsurance agreements except for issues involving injunctive relief.

Additionally, these clauses provided that the arbitrators “may award interest and costs.”

¶ 10 In 2014, the Director sent Catalina a commutation offer claiming a balance of

approximately $1 million owed to Legion’s estate under the various reinsurance treaties.

According to Catalina, this offer was the first time it had received any communication of an issue

regarding the reinsurance treaties with Legion. After Catalina refused to pay, the Director

demanded arbitration to recover the alleged money owed based on the arbitration clauses in the

reinsurance treaties. The Director also sought an award of attorney fees and costs. In response,

Catalina counterclaimed, arguing that it was owed unpaid premiums from Legion under the

reinsurance treaties and sought an award of attorney fees and costs.

¶ 11 In June 2018, following an arbitration hearing, a panel issued an “Initial Final Award,”

determining that Legion failed to comply with the Insurance Code as well as the reinsurance

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treaties concerning obligations to provide notice to Catalina within a reasonable time after each

proof of claim was filed in the liquidation proceedings. Because of this failure, the panel concluded

that Legion’s claims were time-barred and Catalina was relieved of all obligations to pay any

amounts owed. Additionally, the panel concluded that Catalina proved it was entitled to unpaid

premiums and awarded it $76,602.63. Lastly, the panel noted that, given the circumstances, it was

“unreasonable for [Catalina] to bear the costs of having to respond to and defend” the arbitration

brought by Legion and granted Catalina “an adverse award of fees and costs incurred” due to

proceedings. On July 31, 2018, the arbitration panel issued its “Final Award” that reaffirmed and

incorporated its initial final award. The panel also awarded Catalina $437,501.04 in attorney fees

and costs to be paid by Legion. Further, the panel ordered Legion to pay Catalina the amounts

owed within 30 days, otherwise interest would accrue at 6% per annum, compounded quarterly,

until Catalina was paid in full. Catalina subsequently filed a petition to confirm the arbitration

award in the United States District Court for the Northern District of Illinois. On April 6, 2020,

the district court confirmed the award and converted it into a judgment in favor of Catalina and

against the Director, as liquidator of Legion.

¶ 12 Catalina sought to have the Director pay the entire judgment outside of the liquidation

proceedings. But the Director’s attorney informed Catalina that the Director could not pay the

judgment without court approval and Catalina had to file a proof of claim with the Office of the

Special Deputy Receiver (OSDR), a nonprofit corporation representing the Director under the

Insurance Code. See 215 ILCS 5/202 (West 2020). In June 2020, Catalina submitted four proof of

claim forms with the OSDR totaling $76,602.63. Those four claims were based on the reinsurance

treaties and corresponded to the unpaid premiums owed to Catalina, as determined by the

arbitration panel.

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¶ 13 The following month, Catalina issued a citation to discover assets against the Director in a

separate case outside the liquidation proceedings. According to the Director, because Catalina

could only enforce the arbitration judgment through the original liquidation proceedings, he

requested Catalina dismiss the citation and follow the proper procedure. In October 2020, because

Catalina had not voluntarily dismissed its citation, the Director accepted service of the citation and

moved to dismiss it. The circuit court granted the motion finding, in part, the Insurance Code

expressly provided that only the liquidation court had jurisdiction to distribute assets of the estate

of an insurance company undergoing liquidation. 3

¶ 14 C. The Priority of Catalina’s Claims

¶ 15 In November 2020, the Director filed a motion in the liquidation case to allow Catalina’s

claims at the priority (g) level for claims of general creditors. See id. § 205(1)(g). 4 The Director

argued that all claims arising out of reinsurance agreements are claims of general creditors. As a

result, the Director requested an order approving his recommendation that Catalina’s claims of

$76,602.63 in unpaid premiums and $437,501.04 in attorney fees and costs be allowed for

purposes of participating in any second-round distribution on late-filed claims from assets of

Legion’s estate at the priority (g) level. The Director’s motion did not mention the interest awarded

by the arbitration panel.

¶ 16 In response, Catalina initially conceded that its claims for unpaid premiums should be

allowed at the priority (g) level. However, Catalina contested the amount of the attorney fees and

costs claim as stated in the Director’s motion to allow and posited that the Director’s motion did

not include the accrued interest to date. To this end, Catalina claimed that it was owed $535,661.21,

3
This dismissal order was entered by Judge Patrick J. Heneghan.
4
At the time of the filing, the Director was Robert H. Muriel.

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which consisted of $437,501.04 in attorney fees and costs as well as $98,160.17 in interest. The

amount of interest included the interest awarded by the arbitration panel at 6% per annum,

compounded quarterly, from 30 days after the award until April 6, 2020, when the district court

granted Catalina’s petition to confirm the award and converted the award into a judgment.

Following this judgment, according to Catalina, interest began to accrue at 9% per annum as

postjudgment interest under 2-1303 of the Code of Civil Procedure (735 ILCS 5/2-1303 (West

2020)). With the amount of its claim accurately calculated, Catalina argued its adverse award of

attorney fees, costs, and interest were costs and expenses of administration and should be allowed

at the priority (a) level.

¶ 17 The Director filed a reply in support of its motion to allow, asserting that Catalina was not

entitled to any interest on its claim. 5 The Director argued that Catalina’s claim for attorney fees

and costs were not costs and expenses of administering Legion’s estate but rather arose from a

contract dispute over reinsurance treaties. As such, the Director argued that, under settled law,

these claims had to be administered at the priority (g) level for claims of general creditors. The

Director therefore requested that the court approve her request, as stated in the motion to allow.

¶ 18 Following a September 2021 hearing on the Director’s motion, the circuit court took the

matter under advisement, but ordered Catalina’s attorney to provide the court with a calculation of

the claimed interest owed. Later that month, Catalina provided the court with its calculation of

interest asserting that it was entitled to $43,712.50 in interest from August 30, 2018—30 days after

the final arbitration award—until April 6, 2020—when the district court granted Catalina’s petition

to confirm and converted the arbitration award into a judgment. And Catalina asserted it was

5
At the time of the filing, the Director was Dana Popish Severinghaus.

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entitled to $63,242.42 in postjudgment interest under section 2-1303 of the Code of Civil

Procedure (id.) from April 7, 2020, until September 22, 2021, calculated at 9% per annum. In total,

Catalina posited that it was owed $544,455.96.

¶ 19 On September 27, 2021, the circuit court granted the Director’s motion to allow Catalina’s

claim of $76,602.63 in unpaid premiums, $437,501.04 in attorney fees and costs, and $43,712.50

in interest at a rate of 6% from August 30, 2018—30 days after the final arbitration award—until

April 6, 2020, when the federal district court granted Catalina’s petition to confirm and converted

the arbitration award into a judgment in favor of Catalina. 6 The court concluded that all amounts

owed to Catalina were to be assessed at the priority (g) level for claims of general creditors for

purposes of participating in any second-round distribution of assets from Legion’s estate on late-

filed claims and rejected Catalina’s argument that its attorney fees, costs, and interest should be

considered costs and expenses of administration. The court allowed the 6% interest, as awarded

by the arbitration panel and confirmed by the federal district court, but denied Catalina any

statutory postjudgment interest relying on In re Liquidation of Pine Top Insurance Co., 322 Ill.

App. 3d 693 (2001). Additionally, the court acknowledged that, based on the statutory language,

postjudgment interest under section 2-1303 of the Code of Civil Procedure (735 ILCS 5/2-1303

(West 2020)) was mandatory. But it found that, pursuant to Finley v. Finley, 81 Ill. 2d 317 (1980),

it had discretion as a chancery court to disallow postjudgment interest when it would not comport

with justice and equity. To this end, the court determined that allowing postjudgment interest in

the instant case “would not comport with justice and equity.”

¶ 20 Thereafter, Catalina timely appealed.

6
This order was entered by Judge Celia G. Gamrath.

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¶ 21 II. ANALYSIS

¶ 22 A. Priority Distribution Scheme

¶ 23 Catalina first contends that the circuit court erred in determining that its adverse award of

attorney fees, costs, and interest should be distributed at the priority (g) level for claims of general

creditors rather than at the priority (a) level for costs and expenses of administration. This

contention requires us to interpret the Insurance Code’s priority distribution scheme of assets from

the estate of an insurance company undergoing liquation. See 215 ILCS 5/205(1) (West 2020).

¶ 24 When we interpret a statute, our primary goal is to determine and give effect to the intent

of our legislature in enacting the particular provision at issue. Cassidy v. China Vitamins, LLC,

2018 IL 122873, ¶ 17. “The statutory language, given its plain and ordinary meaning, is generally

the most reliable indicator of that legislative intent, but a literal reading must fail if it yields absurd,

inconvenient, or unjust results.” Id. If the words of a particular provision are not defined in the

statute, we will interpret them using their common and ordinary meaning. Midwest Sanitary

Service, Inc. v. Sandberg, Phoenix & Von Gontard, P.C., 2022 IL 127327, ¶ 24. Although a

particular provision of a statute may be at issue, we cannot view the provision in isolation, but

rather must view the provision in the context of the statute at large and consider its subject matter

and overall purpose. Lawler v. University of Chicago Medical Center, 2017 IL 120745, ¶ 12. When

the language of a statute is clear and unambiguous, we must adhere to its plain language and

meaning. Id. We cannot “read[ ] into it exceptions, limitations, or conditions that the legislature

did not express.” Id. However, if the language is ambiguous, we may utilize aids of statutory

construction and other sources to determine the legislature’s intent. In re Marriage of Heroy, 2017

IL 120205, ¶ 13. The interpretation of a statute is a question of law, which means our review

proceeds de novo. Midwest, 2022 IL 127327, ¶ 19.

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¶ 25 Article XIII of the Insurance Code provides the general framework for the liquidation of

an insolvent insurance company like Legion. See 215 ILCS 5/187 to 221 (West 2020). After the

circuit court enters an order of liquidation, title to all the property, contracts, and rights in action

of the insurance company undergoing liquidation becomes vested by operation of law in the

Director and his or her successors. Id. § 191. The court’s order of liquidation creates an estate of

the company undergoing liquidation that includes all of its assets and liabilities. Id. Article XIII of

the Insurance Code further details the duties and responsibilities of the Director, as liquidator, how

parties can file claims and, ultimately, how a claim is allowed, which generally requires the

approval of the circuit court. See id. §§ 191, 193, 208 to 209. Important for this case, article XIII

of the Insurance Code provides a distribution scheme of the assets of the company undergoing

liquidation based on priority. See id. § 205. Our legislature created the priority distribution scheme,

in part, to provide an orderly, efficient, and comprehensive process for liquidating the assets of

insolvent insurance companies. In re Liquidation of Lumbermens Mutual Casualty Co., 2018 IL

App (1st) 170996, ¶ 31. The scheme “protect[s] individual policyholders and other claimants

without permitting certain classes of creditors to place themselves in a superior position.” Lincoln

Towers Insurance Agency, Inc. v. Boozell, 291 Ill. App. 3d 965, 970 (1997).

¶ 26 The priority distribution scheme has nine levels of priority, beginning with priority (a) and

ending with priority (i). 215 ILCS 5/205(1)(a) to (i) (West 2020). Priority (a), the highest priority,

consists of “[t]he costs and expenses of administration.” Id. § 205(1)(a). Next comes priority (b),

which is for secured claims, followed by employee wage claims (priority (c)), claims by

policyholders, beneficiaries, and insureds under various policies and agreements with the insolvent

insurance company (priority (d) and (e)), and then, any claims due the federal government (priority

(f)). Id. § 205(1)(b) to (f). The next priority is priority (g), which is for “[a]ll other claims of general

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creditors not falling within any other priority under this Section including claims for taxes and

debts due any state or local government which are not secured claims and claims for attorneys’

fees incurred by the company in contesting its conservation, rehabilitation, or liquidation.” Id.

§ 205(1)(g). The final two priorities are not relevant for this appeal. Under the priority distribution

scheme, the claimants of the higher priority level must be satisfied in full before the claimants of

a lower priority level can receive a distribution. See In re Liquidations of Reserve Insurance Co.,

122 Ill. 2d 555, 558 (1988). If there are insufficient assets to fully satisfy higher priority claims,

then all lower priority claims receive no distribution of assets from the liquidation proceedings. Id.

¶ 27 Our supreme court has interpreted the Insurance Code’s priority distribution scheme in the

context of reinsurance agreements. In In re Liquidations of Reserve, two insurance companies were

undergoing liquidation, and the Director, as the liquidator of both companies, filed a petition in

both cases seeking a determination “that all claims against [the companies] as reinsurers [were]

‘claims of general creditors.’ ” Id. at 557. The cases were consolidated and reached our supreme

court, which stated the issue was “whether claims arising out of reinsurance agreements between

insurance companies” were claims of general creditors or claims of policyholders, beneficiaries,

and insureds under insurance policies and insurance contracts issued by the companies undergoing

liquidation. Id. at 558. The court highlighted that reinsurance agreements were different than

traditional insurance contracts in both form and substance given that reinsurance agreements could

only be entered into by certain insurance companies and the original policyholders were not a party

to the reinsurance agreements. Id. at 561-62. As such, the interests involved in reinsurance

agreements were different than in direct insurance agreements. Id. at 562. Furthermore, the court

determined that, based upon various provisions of the Insurance Code, the terms “ ‘insurance’ ”

and “ ‘reinsurance’ ” were intended to have different meanings. Id. at 563. As a result, the court

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found that reinsurance agreements could not be subsumed into any provision simply using the term

“insurance contract.” Id. The court asserted that, had the legislature “intended to include

reinsurance agreements” along with traditional insurance contracts in terms of priority, “it would

have explicitly mentioned reinsurance agreements.” Id. Having failed to do so, our supreme court

concluded that “all claims against [the two insurance companies undergoing liquidation] arising

out of reinsurance agreements *** are claims of general creditors.” Id. at 563-64, 568.

¶ 28 Given our supreme court’s decision in In re Liquidations of Reserve, Catalina concedes, as

it did in proceedings below, that its claims for the unpaid premiums owed to Catalina totaling

$76,602.63 must be assigned to priority level (g) for claims of general creditors (215 ILCS

5/205(1)(g) (West 2020)). However, Catalina argues that its adverse arbitration award of attorney

fees, costs, and interest was a liability incurred by the Director, as liquidator, in the active

administration of Legion’s estate, thus qualifying as a cost and expense of administration and

assigned the highest level of priority. See id. § 205(1)(a).

¶ 29 The phrase “costs and expenses of administration” is not defined in the Insurance Code,

and neither are its constituent words. However, our legislature has given clues about the phrase by

expressly including certain costs and expenses as costs and expenses of administration. First, costs

and expenses of administration include:

“[t]he reasonable expenses of the Illinois Insurance Guaranty Fund, the Illinois Life

and Health Insurance Guaranty Association, and the Illinois Health Maintenance

Organization Guaranty Association and of any similar organization in any other

state, including overhead, salaries, and other general administrative expenses

allocable to the receivership (administrative and claims handling expenses and

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expenses in connection with arrangements for ongoing coverage).” Id.

§ 205(1)(a)(i).

In addition, our legislature has expressly included:

“[t]he expenses expressly approved or ratified by the Director as liquidator or

rehabilitator, including, but not limited to, the following:

(1) the actual and necessary costs of preserving or recovering the

property of the insurer;

(2) reasonable compensation for all services rendered on behalf of

the administrative supervisor or receiver;

(3) any necessary filing fees;

(4) the fees and mileage payable to witnesses;

(5) unsecured loans obtained by the receiver; and

(6) expenses approved by the conservator or rehabilitator of the

insurer, if any, incurred in the course of the conservation or rehabilitation

that are unpaid at the time of the entry of the order of liquidation.” Id.

§ 205(1)(a)(ii).

Although these express costs and expenses of administration were added to section 205 of the

Insurance Code in 2017 (see Pub. Act 100-410, § 5 (eff. Aug. 25, 2017) (amending 215 ILCS

5/205)), our review of the legislative history of the public act did not reveal any guidance as to

what our legislature intended by the phrase “costs and expenses of administration.” But still, as

noted, the express costs and expenses of administration are themselves helpful. Section

205(1)(a)(i) allows Illinois guaranty entities—entities that act as a safety net for the payment of

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covered claims in the event an insurer becomes insolvent (see 215 ILCS 5/531.02, 532 (West

2020))—and other similar organizations in other states to recover their reasonable expenses, such

as overhead, salaries, and other general administrative expenses. See also In re Liquidation of

Lumbermens, 2018 IL App (1st) 170996, ¶ 32 (finding the plain and unambiguous language of

section 205(1)(a)(i) was to allow guaranty associations the ability “to recover their ‘reasonable

expenses’ ”). Meanwhile, section 205(1)(a)(ii) involves the expenses incurred, and approved or

ratified by the Director, in his or her role as the statutory and court-affirmed liquidator or

rehabilitator, in the process of liquidating or rehabilitating an insurance company.

¶ 30 While the legislature has expressly included certain costs and expenses as those of

administration, we can also look to the dictionary, particularly Black’s Law Dictionary, for

guidance on the plain and ordinary meaning of the phrase “costs and expenses of administration.”

See Midwest, 2022 IL 127327, ¶ 24; Rosenbach v. Six Flags Entertainment Corp., 2019 IL 123186,

¶ 32. According to Black’s Law Dictionary, “administration” means “[t]he management or

performance of the executive duties of a government, institution, or business; collectively, all the

actions that are involved in managing the work of an organization” or “[i]n public law, the practical

management and direction of the executive department and its agencies.” Black’s Law Dictionary

(11th ed. 2019). Additionally, Black’s Law Dictionary defines “expense” as “[a]n expenditure of

money, time, labor, or resources to accomplish a result” and “cost” as “[t]he amount paid or

charged for something.” Black’s Law Dictionary (11th ed. 2019). Putting the constituent words

together, the plain and ordinary meaning of “costs and expenses of administration” is generally

the amount paid or charged for something, or the expenditure of money, time, labor, or resources

to accomplish a result during the management or performance of liquidating or rehabilitating an

insolvent insurance company. This general definition dovetails with the costs and expenses our

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legislature has expressly included as being costs and expenses of administration, particularly those

approved or ratified by the Director.

¶ 31 Given the plain and ordinary meaning of the phrase “costs and expenses of administration”

and the express inclusion of certain costs and expenses by our legislature, we can deduce what our

legislature intended by that phrase. In doing so, our legislature intended two prongs of costs and

expenses. First, our legislature intended to cover the reasonable expenses, such as overhead,

salaries and other general administrative expenses, of guaranty associations in Illinois and other

states. And second, our legislature intended to cover the amounts paid or charged, or the

expenditure of money, time, labor, or resources of the Director, or those on his or her behalf,

marshaling and distributing the insolvent insurer’s assets. Moreover, implicit in the term “of

administration” is the fact that the costs and expenses have a postliquidation or postrehabilitation

basis because there can only be an administration of the estate of an insolvent insurance company

after an order of liquidation or rehabilitation. Given this legislative intent, our legislature did not

intend to include as costs and expenses of administration an adverse award of attorney fees, costs,

and interest of a claimant incurred while defending a claim from the Director, as liquidator, in

arbitration that had a preliquidation genesis. Furthermore, as discussed, in In re Liquidations of

Reserve, 122 Ill. 2d at 558, 563-64, 568, our supreme court held that “all claims [against an

insurance company undergoing liquidation] arising out of reinsurance agreements” are claims of

general creditors. And in the instant case, the attorney fees, costs, and interest awarded to Catalina

in arbitration arose out of the reinsurance treaties between it and Legion. Those treaties contained

binding arbitration clauses for any dispute arising out of the reinsurance agreements and allowed

the arbitrators to award interest and costs if they so decided. Stated otherwise, but for the arbitration

clauses in the reinsurance treaties, Catalina would not have been awarded the attorney fees, costs,

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and interest upon which they base their claim. As such, it was the dispute based on the reinsurance

treaties that led to Catalina being awarded attorney fees, costs, and interest. Therefore, in light of

In re Liquidations of Reserve, Catalina’s award of attorney fees, costs, and interest must be

assigned to priority level (g) for claims of a general creditor.

¶ 32 Nevertheless, Catalina raises several arguments in support of its position that the attorney

fees, costs, and interest awarded to it in arbitration were costs and expenses of administration. For

one, Catalina posits that, based on Merriam-Webster’s definitions of the phrase’s constituent

words, “costs and expenses of administration” include all losses arising from the liquidator’s

management of the estate. Supporting this argument, Catalina notes that section 205(1)(a) uses the

phrase “including, but not limited to” (215 ILCS 5/205(1)(a) (West 2020)), which it asserts

demonstrates a legislative intent to interpret the statutory provision broadly. Catalina is correct that

our legislature’s use of the phrase “including, but not limited to” is an indication that a subsequent

list is not exhaustive. See Zekman v. Direct American Marketers, Inc., 182 Ill. 2d 359, 369 (1998).

When our legislature uses this phrase, “the class of unarticulated things will be interpreted as those

that are similar to the named things.” Id. But here, the costs and expenses of administration

enumerated in section 205(1)(a) are fundamentally different than an adverse award of attorney

fees, costs, and interest to a party in arbitration called upon to defend itself from a claim brought

by the Director on behalf of a company undergoing liquidation. Furthermore, Catalina’s arguments

based on dictionary definitions and statutory canons of construction cannot overcome our supreme

court’s holding in In re Liquidations of Reserve, 122 Ill. 2d at 558, 563-64, 568, that “all claims

[against an insurance company undergoing liquidation] arising out of reinsurance agreements” are

claims of general creditors.

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¶ 33 Still, Catalina attempts to distinguish In re Liquidations of Reserve from the instant facts,

arguing that the decision is inapplicable because it involved preliquidation debts incurred by

insurance companies undergoing liquidation, whereas the instant case involves a postliquidation

debt incurred by the Director, as liquidator. We acknowledge the claims in In re Liquidations of

Reserve—nonpayment of certain obligations by the two insurance companies undergoing

liquidation to reinsurers—are unlike Catalina’s claim for attorney fees, costs, and interest based

on an adverse arbitration award. But in In re Liquidations of Reserve, our supreme court did not

make a distinction based upon the nature of the claim from the reinsurer. Rather, our supreme court

used broad and all-encompassing language in arriving at its holding that “all claims [against an

insurance company undergoing liquidation] arising out of reinsurance agreements” are claims of

general creditors. Id. Given this broad and inclusive language, In re Liquidations of Reserve

applies regardless of the fact that the instant case involves a postliquidation debt for attorney fees,

costs, and interest because that award still arose from the reinsurance treaties.

¶ 34 Yet, Catalina posits that its adverse arbitration award did not truly arise out of the

reinsurance treaties with Legion. Catalina highlights that the arbitration panel awarded it attorney

fees and costs because, based on the circumstances, it was “unreasonable” for Catalina to bear the

costs of defending the arbitration brought by Legion. Catalina further highlights that the arbitration

clauses in the reinsurance treaties did not contain a contractual right for the prevailing party to

recover costs. It therefore argues that the treaties did not provide the basis for the arbitration panel’s

award of attorney fees and costs. Rather, according to Catalina, the award arose from the panel’s

consideration of equity and reasonableness, namely the Director’s failure to adhere to the notice

requirement of the Insurance Code. See 215 ILCS 5/193(8)(b) (West 2020). However, there would

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be no adverse award of attorney fees and costs but for the arbitration clauses in the reinsurance

treaties, and thus, its adverse award of attorney fees and costs arose from the reinsurance treaties.

¶ 35 Catalina additionally asserts that rejecting its argument that an adverse award of attorney

fees, costs, and interest are costs and expenses of administration conflicts with section 194(a) of

the Insurance Code (id. § 194(a)), otherwise known as the “fixing provision.” In re Liquidation of

Pine Top, 322 Ill. App. 3d at 703. Under section 194(a), upon the circuit court’s entry of an order

of liquidation, “[t]he rights and liabilities of the [insolvent] company and of its creditors,

policyholders, stockholders or members and all other persons interested in its assets, except

persons entitled to file contingent claims, shall be fixed” unless otherwise ordered by the court.

215 ILCS 5/194(a) (West 2020). This provision “is intended to stop the running of any debts,

including postjudgment interest, against the insolvent insurer in order to give the liquidator an

opportunity to marshal the insurer’s assets and pay its debts.” In re Liquidation of Pine Top, 322

Ill. App. 3d at 703-04.

¶ 36 According to Catalina, the fixing provision creates two distinct time periods: (1) debts that

existed before liquidation, which are fixed as of the date of the court’s order of liquidation, and

(2) debts incurred after the date of the court’s order of liquidation while the Director, as liquidator,

administers and manages the estate of the insolvent insurance company. Implicit in such an

argument is that these latter debts are costs and expenses of administration and priority (a) claims.

However, section 194(a) does not provide for this treatment of postliquidation debts, and the only

case Catalina cites for support, In re Liquidation of Pine Top, merely describes the purpose of the

fixing provision. But assuming arguendo that Catalina’s argument is correct, Catalina’s adverse

award of attorney fees, costs, and interest still has a preliquidation basis because it was the dispute

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No. 1-21-1370

based on the reinsurance treaties that led to Catalina’s adverse award. And because this award has

a preliquidation genesis, the award is not a cost or expense of administration.

¶ 37 In addition, Catalina highlights section 202(e)(2) of the Insurance Code (215 ILCS

5/202(e)(2) (West 2020)), which creates a right to indemnification from the assets of the

company’s estate for the Director, his or her employees, and his or her advisors where “a cause of

action is commenced against” them “either personally or in their official capacity” arising out of

their actions “within the scope of their duties or employment involving a company in liquidation.”

The right to indemnification generally includes “all expenses, attorneys’ fees, judgments,

settlements, decrees, fines, penalties, or amounts paid in satisfaction of or incurred in the defense

of the cause of action.” Id. Moreover, “[a]ny indemnification, expense payments, and attorneys’

fees from the company’s assets for actions against” the Director, his or her employees, and his or

her advisors “shall be considered an administrative expense of the estate.” Id. According to

Catalina, it is inconsistent to hold that a judgment against the liquidator personally constitutes an

administrative expense, but a judgment against the liquidator acting as liquidator does not qualify

as such. Catalina argues that, in both cases, the judgment arises from actions taken by the liquidator

within his or her scope of his authority to manage the estate.

¶ 38 However, as aptly noted by the Director, Catalina’s arguments rest on the assumption that

its claim for attorney fees, costs, and interest is a claim against the Director, as liquidator, rather

than a claim against the estate, which is not the case. Catalina’s overall contention is that its claim

for attorney fees, costs, and interest should be assessed at the priority (a) level under section 205(1)

of the Insurance Code. See id. § 205(1). That provision states that “[t]he priorities of distribution

of general assets from the company’s estate is to be as follows.” (Emphasis added.) Id. In other

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No. 1-21-1370

words, Catalina’s claim is against Legion’s estate, not the Director, as liquidator. Catalina’s

attempt to find an inconsistency in the statute is unpersuasive.

¶ 39 Catalina also posits that an interpretation that its adverse award of attorney fees, costs, and

interest is not a cost or expense of administration will lead to absurd results, namely creating a

class of general creditors deprived of the ability to file a timely claim under the Insurance Code.

“ ‘[A] court construing the language of a statute will assume that the legislature did not intend to

produce an absurd or unjust result’ [citation], and will avoid a construction leading to an absurd

result, if possible.” Hubble v. Bi-State Development Agency of the Illinois-Missouri Metropolitan

District, 238 Ill. 2d 262, 283 (2010) (quoting State Farm Fire & Casualty Co. v. Yapejian, 152 Ill.

2d 533, 541 (1992)). However, our legislature did not view such a situation as being possibly

absurd or unjust because it explicitly included provisions for claims filed after the court-imposed

deadline, how those late-filed claims can be deemed timely filed, and how, ultimately, those claims

are paid out. See 215 ILCS 5/208(2), (3) (West 2020).

¶ 40 To further support its position that its adverse award of attorney fees, costs, and interest

are costs and expenses of administration, Catalina relies on various decisions based on bankruptcy

proceedings, including Reading Co. v. Brown, 391 U.S. 471 (1968), and its progeny, such as Yorke

v. National Labor Relations Board, 709 F.2d 1138 (7th Cir. 1983), and In re Beyond Words Corp.,

193 B.R. 540 (N.D. Cal. 1996). As acknowledged by the Director, bankruptcy cases can be

persuasive authority. See In re Liquidation of Pine Top, 322 Ill. App. 3d at 704 (“We find support

for our position in cases pertaining to federal bankruptcy and equitable receivership proceedings,

both of which are analogous to proceedings to liquidate an insolvent insurance company.”).

¶ 41 In Reading, 391 U.S. at 483-85, the United States Supreme Court held “that damages

resulting from the negligence of a receiver acting within the scope of his authority as receiver give

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No. 1-21-1370

rise to ‘actual and necessary costs’ ” of operating the business of the debtor under a Chapter 11

bankruptcy case and thus are assigned the highest priority under bankruptcy law as administrative

expenses. However, the instant case does not involve the alleged negligence, let alone any tort, of

the Director in his or her role in liquidating Legion. Rather, in this case, Catalina’s claim for

attorney fees, costs, and interest were based upon discretionary fee-shifting provisions in

arbitration clauses of reinsurance treaties, which themselves were based on a contractual dispute

that predated Legion’s court-ordered liquidation.

¶ 42 To be sure, in In re Jack/Wade Drilling, Inc., 258 F.3d 385 (5th Cir. 2001), the Fifth Circuit

Court of Appeals rejected a similar argument in the bankruptcy context based on Reading to the

one Catalina makes in the instant case. There, two companies, Total Minatome Corporation (Total

Minatome) and Jack/Wade Drilling, Inc. (Jack/Wade), entered into a drilling contract, which

provided for the prevailing party in any dispute under the contract to obtain attorney fees and

expenses. Id. at 386. Thereafter, Jack/Wade filed for Chapter 7 bankruptcy, and its trustee in

bankruptcy sued Total Minatome for breach of contract, alleging that it failed to pay Jack/Wade

for its drilling services. Id. Total Minatome countersued and claimed that Jack/Wade breached the

contract first by failing to properly drill, and ultimately, a jury rejected both claims of breach of

contract at trial. Id. Although the jury rejected both parties’ claims, the district court found that

Total Minatome was the prevailing party and awarded it nearly $500,000 in attorney fees and

expenses. Id. In turn, Total Minatome sought to have its award be given priority as an

administrative expense in Jack/Wade’s bankruptcy proceedings. Id. In rejecting this request, the

Fifth Circuit Court of Appeals found that no circuit court of appeals had “extended Reading to

cover debts incurred by a nonwrongful postpetition action to liquidate a chapter 7 bankruptcy

estate.” Id. at 388. The court concluded that Reading was not “intended to grant priority to post-

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No. 1-21-1370

petition attorney fee awards resulting from a trustee’s good faith attempt to liquidate the debtor’s

estate by bringing suit on a pre-petition contract.” Id. at 389.

¶ 43 Similarly, in In re Hemingway Transport, Inc., 954 F.2d 1, 6-7 (1st Cir. 1992), the First

Circuit Court of Appeals denied administrative priority to a claim for attorney fees that arose out

of postbankruptcy petition litigation, which was based on a prepetition contract. There, the court

observed that the party’s request for administrative priority of attorney fees could not “be

distinguished on any principled basis from any other prevailing party’s request for priority

payment of attorney fees incurred in defending against a lawsuit brought by a chapter 7 trustee

engaged in the routine liquidation of the assets of the chapter 7 estate.” Id. The court acknowledged

that “[a] chapter 7 trustee’s lawsuit may indeed impose burdensome litigation expense upon

successful and unsuccessful defendants alike, yet its prepetition genesis ultimately distinguishes it

from the postpetition losses accorded priority” in Reading. (Emphases in original.) Id. at 7.

¶ 44 Like the bankruptcy trustees in In re Jack/Wade Drilling and In re Hemingway Transport,

the Director, as liquidator of Legion’s estate, demanded arbitration against Catalina based on

preliquidation contracts in the process of faithfully carrying out his or her duties to liquidate the

estate. And, as the circuit court observed in granting the Director’s motion to allow, there is no

evidence the Director, as liquidator, instituted the arbitration in bad faith. As such, we find Reading

and its progeny inapposite to the instant circumstances. Furthermore, In re Jack/Wade Drilling and

In re Hemingway Transport only reaffirm our conclusion that Catalina’s adverse award of attorney

fees, costs, and interest are not costs and expenses of administration.

¶ 45 Catalina cites additional bankruptcy cases to support its position that its adverse award of

attorney fees, costs, and interest are costs and expenses of administration. For instance, in In re

E.A. Nord Co., 78 B.R. 289, 292 (Bankr. W.D. Wash. 1987), the United States Bankruptcy Court

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No. 1-21-1370

for the Western District of Washington concluded that an arbitrator’s award of attorney fees and

costs arising from a bankruptcy debtor’s pursuit of legally frivolous litigation postpetition

constituted an administrative expense. The court reasoned that such a finding was necessary due

to “the critical need to discourage parties from wasting valuable time and causing needless

expense” by pursuing “frivolous litigation.” Id. But, as discussed, there is no evidence that the

Director’s demand for arbitration was legally frivolous. In re E.A. Nord is therefore inapposite.

¶ 46 In another bankruptcy case, In re Execuair Corp., 125 B.R. 600, 601 (Bankr. C.D. Cal.

1991), Whittaker Corporation (Whittaker) obtained an injunction against Execuair Sales

Corporation (Execuair) that prohibited Execuair from selling certain aircraft parts. After Execuair

allegedly violated the injunction, Whittaker initiated a contempt action. Id. While the contempt

proceedings were ongoing, Execuair filed for bankruptcy. Id. Thereafter, a federal court found that

Execuair had violated the injunction and awarded Whittaker attorney fees. Id. The United States

Bankruptcy Court for the Central District of California concluded that the award of attorney fees

should be considered an administrative expense because it was based on a “post-petition act by the

debtor-in-possession or trustee which was intended to benefit the estate but which led to the injury

of a third party.” Id. at 604. However, In re Kadjevich, 220 F.3d 1016, 1021 n.4 (9th Cir. 2000),

the Ninth Circuit Court of Appeals “disapprove[d]” of the holding in In re Execuair. As such,

Catalina’s reliance on In re Execuair is unavailing.

¶ 47 Lastly, during oral argument in this appeal, Catalina maintained that the proceedings were

fundamentally unfair to it because the Director, as liquidator of Legion, failed to follow the

statutory notice requirements and provide it timely written notice of the pendency of claims. See

215 ILCS 5/193(8)(b) (West 2002). But the arbitration panel attempted to rectify this perceived

unfairness by two means. First, the panel found that the Director’s failure to comply with the

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No. 1-21-1370

Insurance Code relieved Catalina of any obligation to pay any amounts owed under the reinsurance

treaties, which was allegedly close to $1 million. And second, the panel awarded Catalina the

adverse award of attorney fees and costs in the amount of $437,501.04 with interest for which

Legion’s estate became responsible. When entering arbitration, Catalina was staring down the

prospect of a net loss of some $900,000 (when including the alleged unpaid premiums owed to it

by Legion), but Catalina left the arbitration with Legion actually owing it some $500,000, which

was a direct result of the arbitration panel remedying the inequities suffered by Catalina. Given

this result, Catalina cannot credibly argue that the entire liquidation proceedings were so unfair

toward it. And even if the proceedings were fundamentally unfair toward Catalina, resulting in

Catalina being potentially unable to obtain full payment from Legion’s estate on its claim for the

attorney fees, costs, and interest, it does not follow that the adverse arbitration award should be

deemed “costs and expenses of administration” where the plain language of section 205(1)(a) of

the Insurance Code (215 ILCS 5/205(1)(a) (West 2020)) and the case law provide otherwise. See

In re Liquidation of Legion Indemnity Co., 2013 IL App (1st) 120980, ¶ 16 (“[T]he rule of absolute

priority established under section 205 of the [Insurance] Code also limit the Liquidator and trial

court in considering special circumstances, providing preferential treatment, or otherwise

fashioning some form of equitable relief.”).

¶ 48 In sum, based upon the plain and ordinary meaning of the phrase “costs and expenses of

administration” and our supreme court’s decision in In re Liquidations of Reserve, 122 Ill. 2d at

558, 563-64, 568, the circuit court correctly concluded that Catalina’s adverse award of attorney

fees, costs, and arbitration interest should be allowed at the priority level (g) for claims of general

creditors (215 ILCS 5/205(1)(g) (West 2020)) and not at the priority level (a) for costs and

expenses of administration (id. § 205(1)(a)).

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No. 1-21-1370

¶ 49 B. Statutory Postjudgment Interest

¶ 50 Catalina next contends that the circuit court erred by not awarding it postjudgment interest

under section 2-1303 of the Code of Civil Procedure (735 ILCS 5/2-1303 (West 2020)), beginning

when the federal district court confirmed its arbitration award and converted it into a judgment and

ending when the circuit court allowed its claim on September 27, 2021. As a purely legal issue,

we review Catalina’s alleged entitlement to postjudgment interest de novo. Eclipse Manufacturing

Co. v. United States Compliance Co., 381 Ill. App. 3d 127, 141 (2007).

¶ 51 Section 2-1303(a) provides that “judgments recovered in any court shall draw interest at

the rate of 9% per annum from the date of the judgment until satisfied,” subject to certain

exceptions not relevant for this appeal. 735 ILCS 5/2-1303(a) (West 2020). In multiple decisions,

this court has found that an award of postjudgment interest under section 2-1303 is mandatory.

See Inman v. Howe Freightways, Inc., 2022 IL App (1st) 210274, ¶ 77 (“The circuit court has no

discretion in awarding interest; rather, the court is required to award interest on a judgment.”);

Certain Underwriters at Lloyd’s, London v. Abbott Laboratories, 2014 IL App (1st) 132020, ¶ 62

(“The trial court has no discretion to deny postjudgment interest, as the imposition of statutory

interest from the date the final judgment was entered is mandatory.”). According to section 2-

1303(a), “[t]he judgment debtor may by tender of payment of judgment, costs and interest accrued

to the date of tender, stop the further accrual of interest on such judgment notwithstanding the

prosecution of an appeal, or other steps to reverse, vacate or modify the judgment.” 735 ILCS 5/2-

1303(a) (West 2020).

¶ 52 In rejecting Catalina’s request for postjudgment interest, the circuit court acknowledged

that postjudgment interest under section 2-1303 was mandatory, but found that, under Finley, 81

Ill. 2d 317, it had discretion as a chancery court to disallow postjudgment interest when it would

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No. 1-21-1370

not comport with justice and equity. In Finley, a mother sought payment from the father of her

children for child-support arrearages and interest on the arrearages. Id. at 322. At the time, there

were no statutes providing for interest on unpaid child support payments. Id. at 331-32. The circuit

court granted the mother’s request for interest on the arrearages. Id. at 322. Ultimately, our

supreme court addressed whether the allowance of interest on the past-due child support was

discretionary or mandatory. Id. at 331. In resolving the question, our supreme court looked at

Bremer v. Bremer, 4 Ill. 2d 190, 192 (1954), and observed that it previously “held that a divorce

proceeding partakes so much of the nature of a chancery proceeding that it must be governed to a

great extent by the rules that are applicable thereto.” Finley, 81 Ill. 2d at 332. And “[i]n a chancery

proceeding, the allowance of interest lies within the sound discretion of the trial judge and is

allowed where warranted by equitable considerations and is disallowed if such an award would

not comport with justice and equity.” Id. In light of this, our supreme court “conclude[d] that the

allowance of interest on past-due periodic support payments is not mandatory” but rather “lies

within the sound discretion of the trial judge.” Id.

¶ 53 Years after Finley was decided, our supreme court reexamined the case in Illinois

Department of Healthcare & Family Services ex rel. Wiszowaty v. Wiszowaty, 239 Ill. 2d 483

(2011). There, the court observed that Finley stood “for the proposition that, where there are no

controlling statutes defining unpaid support payments as judgments or providing for interest,

interest may be awarded on those payments as a discretionary matter because the divorce

proceeding may be likened to a chancery proceeding.” (Emphasis in original.) Id. at 489. The court

added that Finley did “not stand for the proposition that interest is left to the discretion of the

circuit court even when governing statutes have plainly stated otherwise.” Id. As a result, in the

instant case, given that the plain language of section 2-1303 (735 ILCS 5/2-1303 (West 2020))

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No. 1-21-1370

indicates that postjudgment interest is mandatory, Finley did not provide the circuit court

discretion over whether to allow postjudgment interest.

¶ 54 Despite the inapplicability of Finley, that does not mean that postjudgment interest is

proper in this case given the unique nature of liquidation proceedings. This brings us to In re

Liquidation of Pine Top, 322 Ill. App. 3d 693, the second case relied upon by the circuit court in

rejecting Catalina’s request for postjudgment interest. There, a woman was killed in an apartment

building, and her estate filed a lawsuit against the owner of the building, who was covered under

an insurance policy issued by Pine Top Insurance Company. Id. at 695. During the pendency of

the litigation, the circuit court determined that Pine Top was insolvent and ordered it to undergo

liquidation proceedings. Id. Subsequently, the estate of the woman filed a claim against Pine Top,

which the circuit court allowed at the priority (d) level. Id. at 696. Two years later, upon the

Director’s motion, the court approved a 50% distribution on priority (d) claims, resulting in the

Director paying half of the estate’s claim. Id. More than four years after that, the Director moved

for a second 50% distribution on priority (d) claims. Id. In the motion, the Director included

language indicating that the proposed second distribution would fully satisfy Pine Top’s

obligations on the underlying claims. Id. The estate objected to that language and asserted that,

because it was entitled to interest under section 2-1303 from the date its claim was allowed to the

date when the claim was paid at the same priority level as its claim, the proposed second

distribution would not fully satisfy Pine Top’s obligation to the estate. Id. at 697. Ultimately, the

court denied the estate’s claim for postallowance interest. Id.

¶ 55 On appeal, this court framed the question as “whether a claimant whose claim is allowed

against an insolvent insurance company in liquidation proceedings under Article XIII of the

Insurance Code is entitled to interest on its claim pursuant to section 2-1303 of the Code of Civil

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No. 1-21-1370

Procedure, payable at the same priority level as the claim itself.” Id. at 699. In resolving this

question, we highlighted the fixing provision of the liquidation statute and its purpose “to stop the

running of any debts, including postjudgment interest, against the insolvent insurer in order to give

the liquidator an opportunity to marshal the insurer’s assets and pay its debts.” Id. at 703-04. We

then analogized to proceedings under the liquidation provisions of the Insurance Code to federal

bankruptcy and equitable receivership proceedings. Id. at 704. In turn, this court observed that the

United States Supreme Court had “offered several policy reasons for the rule against allowing the

payment of any interest accruing after the filing of a bankruptcy petition or the appointment of a

receiver,” including:

“(1) that the delay in paying the claimants the amount owed them is a necessary

incident to the settlement of the estate and that, as such, the accrual of interest as a

penalty for nonpayment is not appropriate; (2) that considerable administrative

inconvenience would be caused by requiring continuous recomputation of interest

and, correspondingly, continuous recomputation of claims; and (3) that different

creditors would unfairly experience gain or loss based on the dates on which their

claims were paid.” Id. (citing Nicholas v. United States, 384 U.S. 678, 689 (1966);

Vanston Bondholders Protective Committee v. Green, 329 U.S. 156, 163-64

(1946)).

¶ 56 This court found the same policy reasons “support a finding that postallowance interest

should not be allowed on claims against an insolvent insurance company in a liquidation

proceeding.” Id. at 705. First, this court observed that the Director, as liquidator, cannot pay each

claim at the time it was allowed due, in part, to the priority distribution scheme. Id. Second, we

noted that payment of postallowance interest would cause the amount of a claim to be constantly

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No. 1-21-1370

recomputed, which would cause administrative delays and inconvenience. Id. Lastly, this court

asserted that permitting postallowance interest would harm certain creditors and benefit others

based upon events the creditors largely have no control over. Id. at 705-06. Therefore, we affirmed

the circuit court’s denial of the estate’s request for postallowance interest at the same priority level

as its claim.

¶ 57 Turning to the present case, we acknowledge that the interest request in this case is different

than in In re Liquidation of Pine Top Insurance, where a claimant sought only postallowance

interest. Here, on the other hand, Catalina seeks interest beginning when the federal district court

confirmed its arbitration award and converted it into a judgment until the time the circuit court

allowed its claim. Despite Catalina’s request for postjudgment interest not aligning perfectly with

the estate’s request for postallowance interest in In re Liquidation of Pine Top Insurance, the

policy reasons for precluding postallowance interest are similar to the policy reasons precluding

postjudgment interest here. First, allowing postjudgment interest would artificially inflate the

amount of Catalina’s claim. The federal district court granted Catalina’s petition to confirm its

arbitration award and converted that award into a judgment in April 2020. It took Catalina two

months to file proofs of claims with the OSDR, which it did only concerning the unpaid premiums.

And ultimately, in November 2020, the Director filed a motion to allow Catalina’s claims, which

included the adverse award of attorney fees and costs despite Catalina never filing an actual proof

of claim on this award. The Director only included the adverse award of attorney fees and costs in

his motion to allow because he knew this claim was still outstanding. Although in the instant case,

it was the Director who filed the motion to allow Catalina’s claims, nothing prevented Catalina

itself from filing the motion to allow, as it seemed to acknowledge during argument in the circuit

court on the Director’s motion to allow. This timeline shows that allowing postjudgment interest

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No. 1-21-1370

could open liquidation proceedings up to potential gamesmanship by claimants, who could

increase their claim amounts by using various delay tactics. “[J]udgment interest that is awarded

pursuant to section 2-1303 of the Code of Civil Procedure merely preserves the value of the

liquidated obligation by compensating the judgment creditor for delays in payment.” Illinois State

Toll Highway Authority v. Heritage Standard Bank & Trust Co., 157 Ill. 2d 282, 295 (1993). It

would be incongruous with the purpose of postjudgment interest if a claimant itself could delay

payment and then reap the reward of its own delay.

¶ 58 Additionally, allowing postjudgment interest would cause administrative burdens and

thwart the purpose of the priority distribution scheme. If claimants could make tactical decisions

and delay filing claims, as Catalina possibly did in this case, it would create a disorderly and

inefficient process for liquidating the assets of insolvent insurance companies, which is antithetical

to the purpose of the priority distribution scheme. See In re Liquidation of Lumbermens, 2018 IL

App (1st) 170996, ¶ 31. Finally, allowing postjudgment interest would also penalize the estate of

an insolvent insurance company based on reasons beyond the control of the Director, as liquidator.

Because of the priority distribution scheme, the Director cannot pay claimants immediately upon

allowance of their claims. Rather, the Director must go through the statutory process, which

generally requires court approval and contains a specific priority of distribution. See 215 ILCS

5/205, 209(13) (West 2020). It would be unfair to award postjudgment interest as a penalty for

nonpayment. See In re Liquidation of Pine Top, 322 Ill. App. 3d at 705 (“[A]s the liquidator

cannot, for reasons beyond his control, pay claims on the date on which they are allowed, it would

be unfair to award postallowance interest as a penalty for nonpayment.”).

¶ 59 As such, similar to In re Liquidation of Pine Top, we conclude that it is inconsistent with

the priority distribution scheme to allow the award of postjudgment interest on claims against an

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No. 1-21-1370

insolvent insurance company in liquidation under section 2-1303 of the Code of Civil Procedure

(735 ILCS 5/2-1303 (West 2020)). Still, Catalina tries to distinguish the instant case from In re

Liquidation of Pine Top and notes that the decision involved a preliquidation debt that was subject

to the Insurance Code’s fixing provision (see 215 ILCS 5/194(a) (West 2020)), whereas the instant

case involves a postliquidation debt not subject to the Insurance Code’s fixing provision. This

claimed distinction does not negate the critical policy rationales for not allowing postjudgment

interest emanating from claims in liquidation proceedings. Although this court has held that

postjudgment interest under section 2-1303 is mandatory (see Inman, 2022 IL App (1st) 210274,

¶ 77), article XIII of the Insurance Code nonetheless provides that “[t]he pleadings and

proceedings insofar as not otherwise regulated by [Article XIII], shall be as in other civil

proceedings.” 215 ILCS 5/190(4) (West 2020). Because the priority distribution scheme regulates

the payment of claims, we find section 190(4) of the Insurance Code supersedes the mandatory

nature of postjudgment interest under section 2-1303 of the Code of Civil Procedure (735 ILCS

5/2-1303 (West 2020)). Accordingly, the circuit court correctly concluded that Catalina was not

entitled to any postjudgment interest under section 2-1303.

¶ 60 III. CONCLUSION

¶ 61 For the foregoing reasons, we affirm the judgment of the circuit court of Cook County.

¶ 62 Affirmed.

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No. 1-21-1370

In re Liquidation of Legion Indemnity Co., 2023 IL App (1st) 211370

Decision Under Review: Appeal from the Circuit Court of Cook County, No. 02-CH-
06695; the Hon. Celia G. Gamrath, Judge, presiding.

Attorneys Neal R. Novak and Jennifer E. Arnold, of Novak Law Offices,
for of Chicago, for appellant.
Appellant:

Attorneys J. Kevin Baldwin, Daniel A. Guberman, and Dale A. Coonrod,
for of Special Deputy Receiver’s Office, and Patrick Morales-Doyle
Appellee: and Ryan J. Gehbauer, of Thompson Coburn LLP, both of
Chicago, for appellee.

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