Next, such debts must exist between the same persons or entities in order to establish mutuality of identities. ( Matterof Midland Ins. Co. (N.Y. 1992) 79 N.Y.2d 253 [582 N.Y.S.2d 58, 590 N.E.2d 1186, 1192] (hereafter Midland); Harrison v. Adams (1942) 20 Cal.2d 646, 649-650 [ 128 P.2d 9].) Finally, the setoff can occur only between persons or entities of equal capacity; debts owed in a fiduciary, agency, trustee, or partnership capacity are not subject to setoff. ( Downey v. Humphreys, supra, 102 Cal.App.2d at p. 336; Midland, supra, 590 N.E.2d at pp. 1192-1193; see also Garrison v. Edward Brown Sons (1946) 28 Cal.2d 28, 30 [ 168 P.2d 153].)
The common law doctrine of setoff "allows entities that owe each other money to apply their mutual debts against each other, thereby avoiding the absurdity of making A pay B when B owes A."In re Malinowski, 156 F.3d 131 (2d Cir. 1998) (internal quotation marks omitted). In setoff, the debts and credits between the parties may arise from different transactions, Midland Ins. Co. v. Corcoran, 79 N.Y.2d 253, 259-60 n. 2, 590 N.E.2d 1186, 1189, 582 N.Y.S.2d 58, 61 (1992), but they must be mutual, Scherling v. Hellman Elec. Corp. (In re Westchester Structures, Inc.), 181 B.R. 730, 740 (Bankr.S.D.N.Y. 1995). "[D]ebts are mutual when they are due to and from the same persons in the same capacity." Id.; accord In re Midland Ins. Co., 79 N.Y.2d at 259, 582 N.Y.S.2d 58, 590 N.E.2d 1186.
The claim is baseless because, unlike In re Bevona, which involved facts raised by that court sua sponte, plaintiffs' argument is directed at the law on which this court relied. It is true that the parties did not cite Matter of Midland Ins. Co., 79 NY2d 253 (1992), decided a quarter century ago and followed by courts to this day. Moreover, the issue of whether the LPT provided treaty insurance for the purposes of the Certificates was argued at length (see Def. Opp. to Motion to Dismiss Certain Defenses, NYSECF Doc. No. 25, at 15-20).
Those rights were not altered merely because a liquidation order was entered." Matter of Midland Ins. Co., 79 NY2d 253, 265 (1992). There, the Court of Appeals rejected the Superintendent's argument that a reinsurer's contractual right of set-off, which existed prior to Midland's insolvency, was destroyed due to Midland's insolvency.
In re Malinowski, 156 F.3d at 133 (quoting from Official Comm. of Unsecured Creditors v. Mfrs. and Traders Trust Co. (In re Bennett Funding Group, Inc.), 146 F.3d 136, 140 (2d Cir. 1998)) (internal quotation marks omitted). In setoff, the debts may arise from different transactions, Kemper Reins. Co. v. Corcoran (In re Midland Ins. Co.), 79 N.Y.2d 253, 259-60 n. 2, 590 N.E.2d 1186, 1189, 582 N.Y.S.2d 58, 61 (1992), but they must be mutual, Scherling v. Hellman Elec. Corp. (In re Westchester Structures, Inc.), 181 B.R. 730, 740 (Bankr. S.D.N.Y. 1995) (citing Beecher v. Peter A. Vogt Mfg., 227 N.Y. 468, 473, 125 N.E. 831 (1920)). "[D]ebts are mutual when they are due to and from the same persons in the same capacity."
The court further noted that "[s]olvency of the reinsured becomes an integral part of the risk undertaken and is a material fact that should be disclosed" (citations omitted). Agreeing with the reinsurers that liquidation principles do not deprive them of a defense of fraud against the Liquidator, the court, quoting Matter of Midland Ins. Co. ( 79 N.Y.2d 253, 264-265), stated that "`liquidation cannot place the liquidator in a better position than the insolvent company he takes over, authorizing him to demand that which the company would not have been entitled to prior to liquidation'" (citation omitted). The Appellate Division unanimously affirmed ( 200 A.D.2d 99). After this Court dismissed leave to appeal on nonfinality grounds ( 84 N.Y.2d 1026), Supreme Court severed the Liquidator's claim for return of reinsurance premiums and dismissed the Liquidator's claim for recovery of reinsurance proceeds.
“A reinsurance contract is one by which a reinsurer agrees to indemnify a primary insurer for losses it pays to its policyholders” ( Matter of Midland Ins. Co., 79 N.Y.2d 253, 258, 582 N.Y.S.2d 58, 590 N.E.2d 1186 [1992] ).
"A reinsurance contract is one by which a reinsurer agrees to indemnify a primary insurer for losses it pays to its policyholders" ( Matter of Midland Ins. Co., 79 NY2d 253, 258 [1992]). In exchange for the agreement to indemnify, the primary insurer "cedes" part of the premiums for its policies and the losses on those policies to the reinsurer ( id.).
"A reinsurance contract is one by which a reinsurer agrees to indemnify a primary insurer for losses it pays to its policyholders" (Matter of Midland Ins. Co., 79 NY2d 253, 258 [1992]). In exchange for the agreement to indemnify, the primary insurer "cedes" part of the premiums for its policies and the losses on those policies to the reinsurer (id.).
When the "ceding insurer" transfers a portion of the risk for a group of underlying insurance policies, it is described as "treaty reinsurance." Matter of Midland Ins. Co., 590 N.E.2d 1186 (N.Y. 1992). With respect to the commercial auto policy out of which the Williams' claim arose, Commonwealth had ceded a portion of the risk, through its intermediary, to the Reinsurers, the underwriting syndicates mentioned above.