The New York Court of Appeals decision on April 5, in the Midland Insurance Company liquidation (In re Liquidation of Midland Insurance Company1) is an important affirmation of policyholder rights. In this decision, New York’s highest court held that a policyholder is entitled to a claim and policy-specific choice of law analysis in the liquidation process, rejecting the Midland liquidator’s effort to make a blanket application of New York law to Midland’s 38,000 policyholders. The essential holding of the New York Court of Appeals, i.e., that insolvency does not alter an insurer’s obligations to its policyholders, is not itself remarkable. However, this holding by New York’s highest court will have broad implications because of New York’s status of the domicile of hundreds of insurance companies. And, because this decision is also consistent with the decision of the only other state supreme court to address this question, policyholders may more confidently assert an individualized choice-of-law position when prosecuting claims in insurance company liquidation proceedings.

In liquidation proceedings, policyholders typically are required to submit claims to the liquidator of the insurance company in liquidation, appointed by the state regulatory body of the state in which the insolvent insurer is chartered. An “allowed claim” or “recommended amount” in the liquidation process must typically be approved by a trial court in the state in which the insurance company in liquidation is chartered. This court also hears disputes when a policyholder disagrees with a determination by the liquidator. Frequently, liquidators seek to make a blanket application of the law of the state in which the liquidation is proceeding, not only for administrative reasons but also because the law of such jurisdiction is typically friendly to insurers. New York is a particularly apt example of such a jurisdiction.