## Facts

- Century Indemnity Company (CIC) and several affiliated insurers entered a “Pre-1987 General Liability Reinsurance Agreement” effective December 31, 1995 (the 1995 agreement).
- Under the 1995 agreement, CIC agreed to assume a 100% quota-share participation in certain general-liability policy liabilities issued by the affiliated insurers (the covered policies).
- In exchange, the affiliated insurers paid CIC an amount equal to their net carried reserves for liabilities relating to the covered policies.
- The affiliated insurers also assigned CIC “all rights to reinsurance recoverables (and any collateral pertaining thereto) relating to Covered Policies.”
- The assigned reinsurance recoverables included obligations owed by The Home Insurance Company (Home) to the affiliated insurers as reinsurer.
- The 1995 agreement contained a mechanism addressing “uncollectible reinsurance,” under which such recoverables could be returned to the affiliated insurers at face value.
- In June 2003, Home was declared insolvent and placed into liquidation in New Hampshire; the insurance commissioner acted solely as liquidator.
- A liquidation claims protocol governed payments CIC owed to Home and stated that payments would be net of setoff as allowed under RSA 402-C:34 or other New Hampshire law.
- CIC sought to set off (i) the reinsurance recoverables it held against Home by assignment against (ii) amounts CIC otherwise had to pay Home under the claims protocol.
- The liquidator challenged the setoff, arguing that the debts were not “mutual” because CIC obtained the claims by a non-absolute assignment and thus lacked the required legal capacity as beneficial owner.
- The matter proceeded as a disputed claim. A referee denied setoff, and the superior court sustained the referee’s ruling, reasoning that the return-at-face-value feature showed the assignment was not absolute.
- CIC appealed to the Supreme Court of New Hampshire.

## Issues

1. Whether CIC’s assigned reinsurance recoverables against Home constituted “mutual debts or mutual credits” with CIC’s payment obligations to Home under RSA 402-C:34.
2. Whether the 1995 agreement transferred the affiliates’ claims to CIC by absolute assignment (supporting mutuality) or only as an assignment for collection/conditional transfer (defeating mutuality).
3. Whether RSA 402-C:34, II(b) barred setoff on the theory that Home’s obligation was transferred to CIC with a view to using it as a setoff.

## Decision

- The Supreme Court of New Hampshire reversed the superior court’s order and remanded.
- The court held that an absolute assignment of a claim can satisfy the mutuality requirement for setoff under RSA 402-C:34.
- Construing the 1995 agreement, the court concluded the affiliated insurers made an absolute assignment to CIC of all rights to reinsurance recoverables (including Home’s reinsurance obligations).
- The court determined that the provision addressing uncollectible reinsurance did not convert the transfer into a mere collection arrangement or leave beneficial ownership with the affiliates.
- The court also concluded the statutory bar for obligations transferred “with a view” to setoff did not apply, because the 1995 transfer occurred years before Home’s insolvency and was part of a larger, bona fide transaction.
- Because mutuality existed and no statutory exception applied, CIC was entitled to assert setoff, subject to further proceedings on remand.

## Legal Principles

- RSA 402-C:34 requires setoff of “mutual debts or mutual credits” between the insurer in liquidation and another person, with payment or allowance only of the balance, unless a statutory exception applies.
- “Mutual” debts must be due to and from the same persons in the same legal capacity; capacity refers to legal status (for example, principal versus agent or trustee).
- An absolute assignment is a complete transfer of ownership and control of a claim; the assignee becomes the party entitled to enforce and benefit from the claim and may satisfy mutuality for setoff.
- An assignment for collection generally transfers only legal title to facilitate collection while beneficial ownership remains with the assignor; in that situation, mutuality is lacking because the assignee is not the beneficial owner.
- Whether an assignment is absolute or for collection depends on the parties’ intent shown by the agreement’s language and the transaction’s structure.
- Under RSA 402-C:34, II(b), setoff is disallowed if the insurer’s obligation was purchased or transferred to the claimant with a view to using it as a setoff; timing and the transaction’s purpose inform that inquiry.

## Conclusion

The New Hampshire Supreme Court held that CIC’s 1995 acquisition of “all rights to reinsurance recoverables” from its affiliates was an absolute assignment that made CIC and Home mutually indebted in the same legal capacity for purposes of RSA 402-C:34, and that the statute’s “with a view to setoff” exception did not apply; the court therefore reversed the denial of setoff and remanded for further proceedings consistent with its ruling.


In the Matter of the Liquidation of The Home Insurance Company, 157 N.H. 543 (2008)