A courtroom showdown looms between California and Montana, officials in both states said Wednesday, over which state has the right to liquidate an insurance company that wrote policies on million of dollars of bad loans that contributed to a $95-million loss at Bank of America late last year.
Glacier General Assurance, which has been put out of business in both states because its liabilities exceed its assets by at least $131 million, is headquartered in Montana. More than 90% of its estimated $40 million in assets, however, are in California.
Legal wrangling is inevitable, both sides say, because each state has been named primary overseer by a home court. The First Judicial District Court of Montana made its ruling Nov. 12. On Tuesday, the Superior Court of California in Orange County made a similar ruling.
"Both states have issued exactly conflicting orders," said Benjamin C. Neff, who has been appointed by Montana courts to liquidate Glacier.
"It looks like we're going to court," said Montana State Auditor Andrea Bennett, explaining that her office will go to federal court to challenge California's authority to liquidate the firm.
Courts traditionally grant the right to oversee liquidation of an insurance company to the state where the company is based, allowing other states to act only as auxiliary liquidators for those assets that lie within their borders.
The disagreement between California and Montana arises because most of Glacier's assets are outside the state where it is headquartered.
"There's a tug-of-war going on, but it's not a battle. Everyone wants to make sure they get their fair share," said one California insurance official. The official said the two states "are working together," but he agreed that a judge ultimately will have to decide which state has primary authority in the liquidation.
Glacier wrote financial guarantee bonds--a promise to repay bank loans if the borrower defaults--on $89 million in real estate loans for which Bank of America served as trustee and escrow agent.
The bank lost $95 million in the fourth quarter of 1984 when numerous borrowers, Glacier and other insurance firms refused to make good on a large pool of mortgage loans administered by the bank.