Ruthardt v. United States

United States Court of Appeals
For the First Circuit
No. 01-2553
LINDA RUTHARDT,
in her official capacity as COMMISSIONER OF INSURANCE
OF THE COMMONWEALTH OF MASSACHUSETTS and PERMANENT RECEIVER OF
AMERICAN MUTUAL LIABILITY INSURANCE COMPANY and AMERICAN
MUTUAL INSURANCE COMPANY OF BOSTON,

Plaintiff,

v.

UNITED STATES OF AMERICA and JOHN ASHCROFT,
in his official capacity as
ATTORNEY GENERAL OF THE UNITED STATES,

Defendants, Appellees.
___________

ALABAMA INSURANCE GUARANTY ASSOCIATION, ET AL.,

Movants, Appellants.
____________________

No. 01-2587
No. 01-2668

LINDA RUTHARDT,
in her official capacity as COMMISSIONER OF INSURANCE
OF THE COMMONWEALTH OF MASSACHUSETTS and PERMANENT RECEIVER OF
AMERICAN MUTUAL LIABILITY INSURANCE COMPANY and AMERICAN
MUTUAL INSURANCE COMPANY OF BOSTON,

Plaintiff, Appellant/Cross-Appellee,

v.

UNITED STATES OF AMERICA and JOHN ASHCROFT,
in his official capacity as
ATTORNEY GENERAL OF THE UNITED STATES,

Defendants, Appellees/Cross-Appellants.
___________

ALABAMA INSURANCE GUARANTY ASSOCIATION, ET AL.,

Movants.
 APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Douglas P. Woodlock, U.S. District Judge]

Before

Boudin, Chief Judge,

Selya, Circuit Judge

and Greenberg,* Senior Circuit Judge.

Joseph C. Tanski with whom Alan J. Cooke, David B. Mack and
Hutchins, Wheeler & Dittmar, P.C. were on brief for movants,
appellants.
Kathleen A. Kane, Appellate Staff, Civil Division, Department
of Justice, with whom Robert D. McCallum, Jr., Assistant Attorney
General, Michael J. Sullivan, United States Attorney, and Robert M.
Loeb, Appellate Staff, Civil Division, Department of Justice, were
on brief for defendants, appellees.
Thomas A. Barnico, Assistant Attorney General, Government
Bureau, with whom Thomas F. Reilly, Attorney General, J. David
Leslie and Eric A. Smith, Special Assistant Attorneys General,
Rackemann, Sawyer & Brewster were on brief for plaintiff,
appellant/cross-appellee.
Joseph C. Tanski, Alan J. Cooke, David B. Mack and Hutchins,
Wheeler & Dittmar, P.C. on brief for Insurance Guaranty Funds,
Amicus Curiae.
Rowe W. Snider, Steven T. Whitmer and Lord Bissell & Brook on
brief for National Conference of Insurance Guaranty Funds, Amicus
Curiae.
Joel A. Glover, Franklin D. O'Loughlin, Rothgerber Johnson &
Lyons LLP, Joseph F. Ryan and Lyne Woodworth & Evarts LLP on brief
for National Organization of Life and Health Insurance Guaranty
Associations, Amicus Curiae.
Kathleen A. Kane, Appellate Staff, Civil Division, Department
of Justice, with whom Robert D. McCallum, Jr., Assistant Attorney
General, Michael J. Sullivan, United States Attorney, and Robert M.
Loeb, Appellate Staff, Civil Division, Department of Justice, were
on brief for defendants, appellees/cross-appellants.

September 18, 2002

*
Of the Third Circuit, sitting by designation.
 BOUDIN, Chief Judge. On these appeals, plaintiff the

Massachusetts Commissioner of Insurance ("the Commissioner") argues

that--under the McCarran-Ferguson Act, 15 U.S.C. § 1011 et seq.

(2000)--two provisions of state law govern claims by the United

States in a state insurance company liquidation proceeding. The

district court said yes as to one issue (claims priority) and no as
to the other (bar date). We agree.

On March 9, 1989, a Massachusetts state court determined

that two Massachusetts insurance companies (collectively, "American

Mutual") were insolvent. The court then appointed the Commissioner

as permanent receiver to conduct their liquidation. On March 22,

1989, in accordance with state law, the court entered an order

requiring all creditors of American Mutual to file proofs of claim
with the receiver within one year of the liquidation date (i.e., by

March 9, 1990). See Mass. Gen. Laws ch. 175, § 180F (2000); In re

Liquidation of Am. Mut. Liab. Ins. Co., 747 N.E.2d 1215, 1219
(Mass. 2001).

Agencies of the United States eventually filed claims
against the two insurance companies totaling over $640,000. Some

of the claims were filed after the one-year deadline; these late-

filed claims comprised $140 claimed by the late Interstate Commerce

Commission and $69,865 claimed by Medicare contractors. The United

States has asserted throughout that all of its claims are entitled

to priority over claims of the so-called "guaranty funds" and that

the one-year bar date does not apply to any of its claims.

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 Virtually all states have set up insurance guaranty funds

to protect policyholders if and when insurance companies go

bankrupt. Although the extent of coverage varies, in general
covered claims by policyholders against an insolvent insurer are

paid by the fund. The fund in turn acquires and can enforce (the

legal phrase is "subrogated to") the insured’s claim against the
insurer assets held by the receiver. See, e.g., Mass. Gen. Laws

ch. 175D, § 8(1) (2000). American Mutual did business in a number

of states, and payments (as of September 2000) by guaranty funds in

46 jurisdictions to policyholders of American Mutual totaled over

$650 million.

After making a number of partial payments to the

guaranty funds--which are the largest creditors in the liquidation-
-the Commissioner on May 14, 1999, filed a liquidation plan in

state court. The plan proposes to distribute remaining American

Mutual assets as provided under Massachusetts law: pertinently,
first priority is for administrative claims; second, for

policyholder claims including subrogated claims made by guaranty

funds; third, for unearned premiums; and fourth, for non-

policyholder claims of the United States. Mass. Gen. Laws ch. 175,

§ 180F.

The American Mutual assets held by the receiver do not

suffice to cover all claims. The United States, which had

consented to earlier distributions, insisted that as a matter of

federal law its priority trumped that of the guaranty funds and

also that the one-year bar date could not be applied to its late-

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filed claims. In response, the Commissioner, who can be held

personally liable under federal law for ignoring proper claims of

the United States, 31 U.S.C. § 3713(b) (2000), brought the present
declaratory judgment action in the district court to settle the two

issues.

Various guaranty funds from Massachusetts and other
jurisdictions1 sought to intervene; the district court denied them

intervenor status but allowed them to file amicus briefs. On cross

motions for summary judgment, the district court determined that,

by "reverse preemption," the McCarran-Ferguson Act allowed state

law to override otherwise applicable federal law, thus according

the guaranty funds priority over the United States as to subrogated

policyholder claims. Ruthardt v. United States, 164 F. Supp. 2d

232, 241 (D. Mass. 2001). Conversely, relying on a prior decision

of this court, the district court held that the United States was

not bound by Massachusetts law’s one-year requirement for filing
claims. Id. at 244-45.

The United States now appeals to contest the priority

ruling. The Commissioner cross-appeals as to the time bar ruling.

The guaranty funds appeal from the denial of intervention. For

reasons that will become apparent, the important open issue on

these appeals, which is subject to de novo review, Euromotion, Inc.

1
The states represented by the guaranty funds are Alabama,
California, Connecticut, the District of Columbia, Illinois,
Louisiana, Maine, Massachusetts, Missouri, Nebraska, Nevada, New
Hampshire, Pennsylvania, Rhode Island, South Carolina, Texas,
Vermont, and Virginia.

-5-
v. BMW of N. Am., Inc., 136 F.3d 866, 869 (1st Cir. 1998), concerns

the United States’ claim to priority over the guaranty funds.

Claims Priority. The priority issue is framed by several
statutes. The first is the Federal Priority Act, 31 U.S.C. § 3713

(2000), which gives first priority ("shall be paid first") to the

United States for its claims against, inter alia, an insolvent

entity’s estate. By express qualification, this provision does not

apply to Bankruptcy Code proceedings, id. § 3713(a)(2), but this

qualification does not extend to state proceedings to liquidate

insurance companies.

Instead, to preserve state priorities, the Commissioner

relies upon the McCarran-Ferguson Act, which as amended provides as

follows (the critical language is underscored):
Section 1. Congress hereby declares that the continued
regulation and taxation by the several States of the
business of insurance is in the public interest, and that
silence on the part of the Congress shall not be
construed to impose any barrier to the regulation or
taxation of such business by the several States.

Section 2.
(a) State regulation
The business of insurance, and every person engaged
therein, shall be subject to the laws of the several
States which relate to the regulation or taxation of
such business.

(b) Federal regulation
No Act of Congress shall be construed to invalidate,
impair, or supersede any law enacted by any State for
the purpose of regulating the business of insurance, or
which imposes a fee or tax upon such business, unless
such Act specifically relates to the business of
insurance: Provided, That after June 30, 1948, the Act
of July 2, 1890, as amended, known as the Sherman Act,

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 and the Act of October 15, 1914, as amended, known as
the Clayton Act, and the Act of September 26, 1914,
known as the Federal Trade Commission Act, as amended,
shall be applicable to the business of insurance to the
extent that such business is not regulated by State
Law.

15 U.S.C. §§ 1011-12 (emphasis added).

The statute's origins are familiar. In United States v.

South-Eastern Underwriters Ass'n, 322 U.S. 533 (1944), the Supreme

Court held that insurance, hitherto regulated by the states as a
local activity, fell within the Commerce Clause and was therefore
subject to federal antitrust regulation. Congress responded with

the McCarran-Ferguson Act. The provision of primary interest here-

-the underscored language of section 2(b)--immunizes against

federal statutory preemption those state statutes enacted "for the

purpose of regulating the business of insurance."2

Unsurprisingly, the Commissioner argues that the quoted

language embraces the Massachusetts priority statute insofar as it

prefers the claims of guaranty funds arising out of their payments

to policyholders. Put differently, the Commissioner says that the

quoted language means that the Federal Priority Act does not

"supercede" this facet of the priority statute. In shorthand, this

2
Section 2(a) of the statute effectively safeguards state
insurance regulation against preemption through the dormant
Commerce Clause doctrine. In section 2(b), Congress intended to
protect state regulation against federal statutory preemption, but
it added two limitations: state regulation is not protected where
Congress enacts a statute that "specifically relates to the
business of insurance"; and, in addition, the federal antitrust
laws apply to insurance companies "to the extent that [the business
of insurance] is not regulated by State Law." Neither limitation
is at issue here.

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can be called "reverse preemption"--of federal law by state law--by

Congress' consent.

If the McCarran-Ferguson Act were read in lay terms, the
Commissioner would easily prevail. In ordinary usage, the

liquidation of American Mutual was surely part of the state's

regulation of the insurance business; and, as we will see, the
Massachusetts statute according priority (over the United States)

to guaranty funds for their subrogated claims is part of a scheme

directed to protecting policyholders by assuring prompt and full

payment of covered claims. But the Supreme Court has read the

exemption more narrowly than literally, making this an extremely

close case.

Suffice it to say that the narrowing has been based in
part on legislative history and in part on policy concerns. One

special policy concern relates to a desire to assure antitrust

enforcement; but even when antitrust is not at issue the Court has
in general read "business of insurance" restrictively, focusing on

the insurance contract and the protection of policyholders. See

Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119, 129 (1982).

Other insurance-related regulation or activities have also been

deemed outside the protection of the McCarran-Ferguson Act. The

leading cases include Pireno, Group Life & Health Insurance Co. v.

Royal Drug Co., 440 U.S. 205 (1979), SEC v. National Securities,

-8-
Inc., 393 U.S. 453 (1969), and United States Department of Treasury

v. Fabe, 508 U.S. 491 (1993).3

Fabe dealt directly with the question whether the Federal
Priority Act superceded a state statute governing priorities in

insurance company liquidation. There, the Ohio statute in question

assigned all government claims a lower priority than, inter alia,

administration expenses, employee claims for wages due,

policyholder claims, and the claims of non-governmental creditors.

By a five-to-four vote, the Supreme Court upheld the priority for

policyholders and for administrative expenses, the latter on the

ground that they were essential for the liquidation and therefore

for policyholders' receipt of payments. Fabe, 508 U.S. at 493,

508-09.
But so far as the Ohio statute gave priority to employee

and general creditor claims, Fabe held that the McCarran-Ferguson

Act did not protect the statute "because their [the employee and
creditor claims] connection to the ultimate aim of insurance [was]

too tenuous," 508 U.S. at 509; and accordingly, the Federal
Priority Act did give the United States priority ahead of those two

classes. Four dissenting justices thought that the liquidation

statute in its entirety failed to qualify as regulation of the

3
Pireno, 458 U.S. at 130 (use of peer review committee to
assess reasonableness of chiropractic services not part of the
business of insurance); Royal Drug Co., 440 U.S. at 213-14
(insurer's agreement with participating pharmacies to provide
benefits to policyholders not part of the business of insurance);
Nat'l Sec., 393 U.S. at 460 (state law regulating merger of
insurers not part of the business of insurance). Fabe is discussed
immediately below.

-9-
business of insurance and that the United States had priority over

all claims. Id. at 517 (Kennedy, J., dissenting).

If and when the next case reaches the Supreme Court, the
dissenting position in Fabe could prevail. That position may be

closer to the mainstream of prior Court cases on the

McCarran-Ferguson Act and, anyway, all four Fabe dissenters still
sit while two of the Fabe majority have left the bench. But for

now the premises of the Fabe majority govern lower courts, see

State Oil Co. v. Khan, 522 U.S. 3, 20 (1997) ("[I]t is this

[Supreme] Court's prerogative alone to overrule one of its

precedents."), so for us the only question is where those premises

lead. Unfortunately, answering that question is difficult because

our own case is very close to Fabe but arguably a small step
beyond.

Prior to Fabe, the touchstone of McCarran-Ferguson

protection was the insurer-insured contract. Fabe deemed the Ohio
liquidation provisions, so far as they gave priority for payment to

policyholders out of the defunct insurer's assets, to be close
enough to enforcement of the original contract to qualify for

McCarran-Ferguson protection. The Court also upheld a priority

for administrative expenses as necessary to assure policyholder

payments, but held invalid (as against the Federal Priority Act)

the state priority for payments for past wages of company employees

and payments to creditors other than policyholders.

Strictly speaking, the priority that Massachusetts gives

to guaranty funds is not absolutely "necessary"--from a short-term

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perspective--to assure payment by the funds to policyholders. If

the "necessity" test were met, then Fabe would clearly resolve the

matter in favor of the Commissioner. But the obligations of the
guaranty funds to pay covered policy claims exists whether or not

the guaranty funds are then reimbursed; direct assessments against

the insurers will be increased to cover the gap. Similarly, the
state priority for guaranty funds gives the funds, not

policyholders, a priority over the United States. To this extent,

the guaranty funds might appear to resemble general creditors who

under Fabe did not get priority over the United States.

This perspective is too narrow. Fabe's premise was not

that priority (over the United States) for policyholders is all

right and priority for anyone else is not; Fabe itself upheld a
priority for administrative expenses of liquidation (and apparently

for administrative expenses of guaranty funds, too, see 508 U.S. at

495 n.2) because these reimbursements facilitated payment to
policyholders. In other words, priorities that indirectly assure

that policyholders get what they were promised can also trigger
McCarran-Ferguson protection; the question is one of degree, not of

kind. See id. at 509 (upholding administrative expenses as

"reasonably necessary" and striking down general creditor claims as

"too tenuous[ly]" connected).

The priority that Massachusetts affords to guaranty funds

is part and parcel of an integrated regime aimed at the protection

of policyholders. Reimbursements to the funds are a significant

source of revenue for making covered payments to policyholders; for

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example, as of September 15, 2000, such payments to the guaranty

funds financed approximately forty-six percent of the payments to

policyholders in the American Mutual liquidation. Without the
priority for such reimbursements, payments to policyholders could

in practice be less secure and would at the very least be delayed

in some instances. Prompt payment is one of the main benefits of
guaranty funds.

That policyholders benefit from a state regulation is not

automatically enough to assure it McCarran-Ferguson protection.

Merely reducing insurer costs (through low cost purchasing or peer

review schemes) may benefit policyholders in the long run, but the

connection may be too remote. See, e.g., Pireno, 458 U.S. at 130;

Royal Drug, 440 U.S. at 213-14. But, as already noted, the issue
is one of directness and degree. Here, we are concerned with

funding payment of promised benefits to policyholders, and payment

of benefit to policyholders is just what Fabe said is within the

general ambit of the McCarran-Ferguson Act.

The United States concedes that, under Fabe, the

policyholders have priority over its own claims. Yet the guaranty

funds are little more than a mechanism for advancing the money to

pay policyholders promptly and then recovering those advances out

of the estate assets, ahead of the United States, just as the

policyholders could have done directly. If the state statutes had

described the fund payments as merely loans, conditioned on the

policyholders advancing their own priority claims to repay the

loans, the United States would lose.

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 It thus becomes apparent that the United States is using

the Federal Priority Act not to maintain its priority but to

enlarge it. If the policyholder makes a direct claim against the
estate, that claim is satisfied out of estate assets ahead of the

United States. If (for speed and certainty) the policyholder is

instead paid by the guaranty fund, and the guaranty fund then seeks
to recoup, the United States' position in this case would mean that

the same assets of the estate are subject to a priority claim of

the United States. This would be a perverse result.

Of course, if Congress directed such a result, it would

be the job of courts to enforce it. But the interplay of the

Federal Priority Act and the McCarran-Ferguson Act is assuredly

something about which Congress thought little. The ironing of such
wrinkles, as with many such statutes, has been left to the courts.

Fabe, which is just such a judicial construct, may not literally

dictate the outcome here; but, all things considered, upholding the
priority of the funds is consistent with the logic and spirit of

Fabe.

The United States makes three arguments for an outcome in

its favor. The best grounded is its claim that the state priority

for guaranty funds does not easily satisfy the Supreme Court's

pre-Fabe criteria for identifying the "business of insurance"; in

particular, the state priority does not directly regulate the

insurance contract between insurer and insured, previously invoked

by the Court as a touchstone. That is so, but that was equally

true of Fabe's priority for administrative expenses and perhaps

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even its priority for policyholder claims against the defunct

insurer. If such priorities were close enough in Fabe to satisfy

the old criteria, they have to be close enough for us.
The second argument is that whether the fund is repaid

ahead of the United States has nothing to do with protecting

policyholders but is simply a benefit for the insurance industry.
This is at most a half truth, and the half that is true does not

matter. Yes, the industry will be better off if the funds have a

priority since direct assessments against the industry will be

less. But the priority for the funds primarily provides adequate

resources for a payment scheme whose central mission is to achieve

prompt payment for policyholders of what their insurance policies

promised them.
The final argument, admittedly inventive, is that some

policyholders will be worse off if the guaranty funds get their

state-law priority: if the funds' state law priority is upheld,
they will compete for estate assets with policyholder claims that

are not covered by fund protection;4 but, if the priority is struck

down, those same assets (after liquidation expenses) will all be

available first for uncovered policyholder claims, after which the

United States will come in ahead of the guaranty funds. Not amused

4
In general, guaranty funds do not "guarantee" the payment of
all claims. In Massachusetts, only certain "covered claims" are
eligible for payment, and coverage is usually limited to a $300,000
cap except in the case of workers' compensation claims (where there
is no cap). Mass. Gen. Laws ch. 175D, §§ 1(2), 5(1)(a) (2000).
"Uncovered claims" therefore include both claims that are
ineligible for guaranty fund protection in their entirety, and the
portion of eligible claims that exceeds the dollar cap.

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by this attempt of the United States to pose as a friend of the

policyholders, the district court called this argument "specious."

Ruthardt, 164 F. Supp. 2d at 240.

It is not quite that. The district court's point was

that "[i]n the absence of guaranty funds," the policyholders'

covered claims would compete with uncovered claims for the same
estate assets; substituting the guaranty funds' claims for the

policyholder claims paid off by guaranty funds leaves the uncovered

policyholder claims with exactly the same assets to divide--and, in

addition, gives the covered claims the benefit of speedy and

assured payment which would not exist without the guaranty fund

scheme. This is all true but it rests on the district court's own

"in the absence" predicate.
The argument of the United States depends not on looking

at the scheme as a whole (and contrasting its absence) but with

comparing the existing scheme, in the short run, first with and
then without a priority for the funds. Even on this basis, it is

not clear that matters would work out as the United States

supposes.5 In any event, the short-run perspective is inadequate:

the guaranty fund scheme, which protects policyholders, is itself

heavily dependent in a practical sense on priority reimbursement

5
If the intended priority for guaranty funds over the United
States were forbidden, a Massachusetts court might well read state
law to treat subrogated claims by the funds as claims of the
policyholder: a departure from the wording of the statute but true
to its aim. The United States would then have to argue that this
recasting of claims also violates the Federal Priority Act--a
hurdle it might or might not be able to leap.

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out of the estate assets. A clever argument cannot overcome this

reality.

The time bar. This brings us to the second major issue
in this case. As already explained, the United States filed a

number of claims against the estate, some of which were filed after

the one-year state deadline for claims in the liquidation
proceeding. Regarding itself as bound by a prior First Circuit

precedent, the district court held that this deadline was not

binding on the United States. On cross appeal the Commissioner

asks us to reexamine this precedent and to hold that the

McCarran-Ferguson Act protects the one-year deadline.

A word of background will be helpful. The Supreme Court

long ago held that (presumptively) claims of the United States as
sovereign cannot be defeated by state statutes of limitations.

United States v. Summerlin, 310 U.S. 414, 417 (1940). We say

"presumptively" because Congress can provide otherwise. The
Commissioner's position is that the McCarran-Ferguson Act does make

the Massachusetts deadline apply to claims of the United States
because that deadline, like the priority provision protecting

guaranty funds, is "for the purpose of regulating the business of

insurance."

This is certainly so in the lay sense of the phrase but,

in Garcia v. Island Program Designer, Inc., 4 F.3d 57 (1st Cir.

1993), we held that it was not so in the specialized sense that the

phrase is used in the McCarran-Ferguson Act, even with the gloss of

Fabe. Dealing with a counterpart deadline--Garcia involved a

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Puerto Rico statute governing insurance company liquidations--then-

Chief Judge Breyer ruled that the deadline was "neither directed

at, nor necessary for, the protection of policyholders . . . .
The provision helps policyholders only to the extent that (and in

the same way as) it helps all creditors." Id. at 62.

We are bound by Garcia which can be overturned only by
this court sitting en banc. United States v. Wogan, 938 F.2d 1446,

1449 (1st Cir.), cert. denied, 502 U.S. 969 (1991). The

Commissioner argues--perhaps overargues--that a few courts

elsewhere have not agreed with Garcia,6 but it would require more

than that for the panel to overturn Garcia. See Williams v.

Ashland Eng'g Co., 45 F.3d 588, 592 (1st Cir.), cert. denied, 516

U.S. 807 (1995). She also argues that we have sub silentio

overturned Garcia by failing to cite it in other cases where it

could have been invoked; but a review of the cases shows that in

one instance only private claims were at issue and the other cases
protected the claims of the United States on other grounds.7

6
The Commissioner primarily relies on Munich American
Reinsurance Co. v. Crawford, 141 F.3d 585 (5th Cir.), cert. denied,
525 U.S. 1016 (1998); Stephens v. American International Insurance
Co., 66 F.3d 41 (2d Cir. 1995); Boozell v. United States, 979 F.
Supp. 670 (N.D. Ill. 1997); Clark v. Blue Cross Blue Shield of West
Virginia, Inc., 510 S.E.2d 764 (W. Va. 1998). Of these, only
Clark, id. at 785-86, and Boozell, 979 F. Supp. at 677-79, directly
criticized Garcia. Stephens cited Garcia with apparent approval on
a related point, 66 F.3d at 45, while Crawford merely noted a
potential difference in approach between Stephens and Garcia, 141
F.3d at 592. In addition, Davister Corp. v. United Republic Life
Ins. Co., 152 F.3d 1277, 1281 n.5 (10th Cir. 1998), also
approvingly cited Garcia.
7
See Mercado-Boneta v. Administracion del Fondo de
Compensacion al Paciente, 125 F.3d 9 (1st Cir. 1997) (upholding a
Puerto Rican bar date with respect to private policyholders);

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 Nevertheless, it is useful to say a word about Garcia,

partly to stress that it is consistent with the view we take of

Fabe in the present case. Conceptually, Fabe draws the line at
state law that focuses protection on policyholder claims, either

directly or indirectly (where the connection is strong, as with the

priority for the subrogated claims). 508 U.S. at 508-09. An early
bar date for United States claims has only a limited effect on

policyholders--who have priority anyway--and equally or primarily

helps other general creditors.

Thus, Garcia correctly applied Fabe. The problem with

letting the United States file late claims is not that this is at

odds with the McCarran-Ferguson Act. Rather, giving the United

States an open-ended exemption from deadlines is (in the
liquidation context) simply terrible public policy and was almost

certainly not the result of any considered judgment by Congress.

Given the connection of the problem with the efficient conduct of
judicial proceedings (i.e., liquidation), we think it may be useful

to Congress for us to explain briefly why the policy ought to be

reconsidered.

Because of the Federal Priority Act, the defunct

insurance company cannot be fully liquidated, and its assets fully

distributed, until all claims of the United States are satisfied to

United States v. R.I. Insurers' Insolvency Fund, 80 F.3d 616 (1st
Cir. 1996) (holding that the Medicare Secondary Payer provision
specifically related to insurance and trumped McCarran-Ferguson
reverse preemption); Villafane-Neriz v. FDIC, 75 F.3d 727 (1st
Cir. 1996) (holding that the federal statute drawn in question did
not impair state law, thus avoiding McCarran-Ferguson reverse
preemption).

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the extent that remaining assets permit. If there is no deadline

for United States' claims, the Commissioner--who is personally

liable for ignoring the Federal Priority Act, 31 U.S.C. § 3713(b)--
cannot ever pay off creditors with lower priorities, unless she can

wrangle a waiver from the United States. No doubt the United

States may give a waiver but here, even after a decade, a final
waiver has not been provided. True, too, the United States is

likely limited as to some of its claims by a patchwork of federal

statutes of limitations; but they vary from claim to claim. E.g.,

28 U.S.C. § 2415 (2000) (general six-year statute of limitations

for contract-based actions for money damages brought by the United

States); 26 U.S.C. § 6501 (2000) (three-year statute of limitations

on income taxes). In a complicated liquidation, understandably the
Commissioner is loath to rely on such statutes--particularly

because she does not know exactly what claims the United States has

so far failed to discover and assert. Some uniform limit is
plainly needed.

Congress could easily fix the problem, as it has already

done for ordinary bankruptcies. 31 U.S.C. § 3713(a)(2) (excepting

Title 11 from the Federal Priority Statute); 11 U.S.C. § 502(b)(9)

(2000); Fed. R. Bankr. P. 3002(c)(1). But this is a matter for the

legislature, not the courts. Among other reasons, the optimal

answer might well be something other than letting each state fix

its own quite short limit for federal claims. The United States,

with its vast array of agencies and activities, might well deserve

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more than one year, cf. Fed R. App. P. 4(a)(1)(A), (B), but it does

not need forever.

In our view, the two state and district court cases that
do disagree with Garcia are not persuasive in their reasoning. See

Boozell, 979 F. Supp. at 677-78; Clark, 510 S.E.2d at 785-86.

Rather, they implicitly reflect the pressure created where the
conduct of an already complicated state proceeding is further

complicated by a seemingly unlimited in time (and therefore

irrational) veto possessed by the United States. If the Department

of Justice cannot find time to draft a proper amendment, it will

simply encourage judicial self-help, however misguided that may be.

Intervention. Finally, we consider the questions raised

by the would-be intervenors, a number of state guaranty funds who
were denied intervention by the district court and now appeal from

that ruling. Regardless of whether review might have been sought

earlier, it is well settled that the final judgment brings up
intermediate rulings such as rulings on intervention. See, e.g.,

Stringfellow v. Concerned Neighbors in Action, 480 U.S. 370, 375-77

(1987) (noting the right of would-be intervenors to appeal from an

adverse final judgment). We sustain the district court's rulings

but permit intervention at this time and in this court on a

going-forward basis.

The would-be intervenors unquestionably have an enormous

practical stake in this case. The guaranty funds are liable,

under their own state laws, to reimburse numerous policyholders of

American Mutual who bought policies in their respective states.

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Similarly their priority in claiming Massachusetts assets of the

estate depends on whether the Commissioner or the United States

prevails on these appeals.
Thus, the would-be intervenors meet the first two

requirements for intervention as of right: an interest in the

matter in controversy and a practical threat to that interest.
Fed. R. Civ. P. 24(a)(2). The difficulty is the qualification:

"unless the applicant's interest is adequately represented by

existing parties." Id. The district court found that the

interests of the guaranty funds were adequately represented by the

Commissioner whose position on the priority and time bar issues is

the same.

Adequacy is presumed, although rebuttably so, where a
government agency is the representative party. See Pub. Serv. Co.

v. Patch, 136 F.3d 197, 207 (1st Cir. 1998) (requiring a "strong

affirmative showing" that the agency is not adequately representing
the would-be intervenor's interests). The guaranty funds argue

that the Commissioner is acting primarily in a private or personal
capacity, given the threat of personal liability under the Federal

Priority Act. But even if this were a pertinent distinction, which

is open to doubt, it would not govern here: the Commissioner has a

pertinent governmental interest in defending state statutes that

benefit Massachusetts policyholders.

No concrete reason is suggested why the Commissioner's

representation is inadequate and, in fact, the common position of

the guaranty funds and the Commissioner has been ably presented.

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Thus, intervention as of right was properly denied. The district

court could, of course, have permitted permissive intervention but

its discretion on that score is great. Daggett v. Comm'n on

Governmental Ethics & Election Practices, 172 F.3d 104, 113 (1st

Cir. 1999). There is no basis for saying it was abused, especially

where the issues were legal and amici briefs were permitted.
The would-be intervenors candidly admit that their

present concern is with the future. Rehearing en banc might be

sought as to Garcia and the possibility exists of Supreme Court

review. Given the magnitude of the stakes and the helpful advocacy

the funds have provided to us, we choose in these unusual

circumstances to exercise our own discretion to allow the guaranty

funds to intervene in the case at this time on a going forward
basis. Cf. Daggett, 172 F.3d at 112.

For the reasons stated, the decision of the district

court is affirmed. The alternative request of the guaranty funds
to intervene in this case is granted as of the release date of this

decision. Each side shall bear its own costs in this court.

It is so ordered.

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