Court of Chancery Finds the Delaware Uniform Fraudulent Transfer Act Grants Standing for Insureds with Contingent, Unmatured Claims to Sue Insurers, but Dismisses Certain Claims as Time-Barred
Burkhart v. Genworth Fin. Inc., C.A. No. 2018-0691-JRS (Del. Ch. Jan. 31, 2020).
This case illustrates not only that plaintiffs who have only unmatured and contingent claims against a transferor have standing to seek relief under the Delaware Uniform Fraudulent Transfer Act (“DUFTA”), but also that they must comply with that statute’s rules for timely filing to avoid dismissal. Here, the plaintiffs are a class of insureds who hold long-term care insurance policies and insurance agents who receive commission payments from selling the insurance policies. The defendant is Genworth Life Insurance Company (“GLIC”), which underwrote the insurance policies at issue. GLIC allegedly made fraudulent transfers between 2012 and 2014 while GLIC was near insolvency by: (1) declaring $410 million in dividends, and (2) terminating intra-company contracts that provided financial support. The plaintiffs filed an action in 2018 in which they argue that GLIC’s fraudulent transfers violate the DUFTA.
GLIC moved to dismiss the complaint, contending that plaintiffs lacked standing. According to GLIC, the plaintiffs had not suffered an actual, concrete injury because GLIC had not defaulted on any obligations it owed plaintiffs. The Court of Chancery disagreed, holding that the plaintiffs had standing because the plaintiffs sufficiently had alleged a “material risk of harm.” Specifically, plaintiffs had alleged that GLIC transferred a substantial amount of assets intentionally to avoid paying the insureds’ claims for long-term care and earned sales commissions.
In an issue of first impression, the Court held that the plaintiffs, who had contingent and unmatured claims and whose rights to payment were not yet mature, could bring claims under the DUFTA. This was because the plaintiffs fell within the statute’s broad definition of “creditors” which includes those who hold “a right to payment, whether or not the right is reduced to judgment . . . contingent . . . unmatured . . . .” The Court stated that there was actuarial certainty that at least some of the plaintiffs would submit future claims or would have rights to future commissions. The plaintiffs therefore were creditors with contingent and unmatured claims and were not “required to stand by helplessly until a distant maturity date arrives while [their] debtor is fraudulently depleted of all assets . . . .” (citation omitted).
Nonetheless, the Court held that the doctrine of laches barred the plaintiffs’ claims. The Court found that the claims accrued between 2012 and 2014 and so were barred by the analogous DUFTA statute of limitations of four years. Equitable tolling did not apply because DUFTA provides for a possible extension of the limitations period for actual (rather than constructive) fraudulent transfers for up to one year from when the allegedly improper transfer was or reasonably could have been discovered. The Court reasoned that this maximum one-year statutory tolling period applied, rather than general equitable tolling doctrines under the common law. Because the plaintiffs had notice of GLIC’s misconduct since February 2017, more than one year before they filed their complaint, the Court accordingly held the claims at issue were time-barred.Share