Vermont § 3635 - Insolvency of ceding company

§ 3635. Insolvency of ceding company

• (a) No credit shall be allowed, as an admitted asset or deduction from liability, to any
  ceding insurer for reinsurance, unless the reinsurance contract provides, in substance,
  that in the event of the insolvency of the ceding insurer, the reinsurance shall be
  payable under contract or contracts reinsured by the assuming insurer on the basis
  of the claims allowed against the ceding insurer in the insolvency proceedings, without
  diminution because of the insolvency of the ceding insurer, directly to the ceding
  insurer or to its domiciliary liquidator or receiver except: (1) where the contract
  specifically provides for payment to the insured or his or her assignee or other persons
  or entity named in the insured’s policy as a payee of such reinsurance in the event
  of the insolvency of the ceding insurer or (2) where the assuming insurer with the
  consent of the direct insured or insureds has assumed such policy obligations of the
  ceding insurer as direct obligations of the assuming insurer to the payees under such
  policies and in substitution for the obligations of the ceding insurer to such payees. (b) The domiciliary liquidator or receiver of an insolvent ceding insurer shall give written
  notice of the pendency of a claim against such ceding insurer on the contract reinsured
  within a reasonable time after such claim is filed in the insolvency proceeding.
  During the pendency of such claim, any assuming insurer may investigate such claim
  and interpose, at its own expense, in the proceeding where such claim is to be adjudicated,
  any defenses that it deems available to the ceding insurer, its liquidator, or receiver.
  Such expense shall be chargeable, subject to court approval, against the insolvent
  ceding insurer as part of the expense of liquidation to the extent of a proportionate
  share of the benefit that may accrue to the ceding insurer solely as a result of the
  defense undertaken by the assuming insurer. Where two or more assuming insurers are
  involved in the same claim and a majority in interest elect to interpose defense to
  such claim, the expense shall be apportioned in accordance with the terms of the reinsurance
  agreement as though such expense had been incurred by the ceding company. (Added 1985, No. 145 (Adj. Sess.), § 5.)