Wilcox v. Anchor Wate Co.

1 Utah Code Ann. § 31A-27-321 (2002).
2007 UT 39
AMENDED OPINION
This opinion is subject to revision before final
publication in the Pacific Reporter.
IN THE SUPREME COURT OF THE STATE OF UTAH
----oo0oo----
Robert E. Wilcox, Utah No. 20050324
Insurance Commissioner,
as Liquidator of Southern
American Insurance Company,
Plaintiff and Appellee,
v.
Anchor Wate Co., Permanent
Concrete, Inc., and Lafarge F I L E D
Corporation,
Defendants and Appellants. May 11, 2007
---
Third District, Salt Lake
The Honorable Glenn Iwasaki
No. 940902068
Attorneys: Craig Carlile, Brent D. Wride, Elaine A. Monson,
Salt Lake City, for plaintiff
Cass C. Butler, Mark L. Callister, Salt Lake City,
for defendants
---
PARRISH, Justice:
¶1 Plaintiff Robert Wilcox (“Liquidator”), as liquidator
for the Utah Insurance Department, brought this action against
defendants Anchor Wate Company and its related companies (“Anchor
Wate” or the “insured”), alleging that $3.5 million in payments
that Anchor Wate had received from Southern American Insurance
Company (“SAIC” or the “insurer”) constitute voidable preferences
under the Utah Insurers Rehabilitation and Liquidation Act (the
“Act”).1 Anchor Wate received the payments pursuant to an
insurance policy it purchased from SAIC, and various reinsurers
indemnified SAIC for the payments.

2 These policies consist of (1) a Net Retained Lines Quota
Share Reinsurance Agreement from Planet Insurance Company
(“Planet”) and Reliance Insurance Company (“Reliance”), (2) a
Combined Casualty Quota Share and Excess of Loss Reinsurance
Agreement from National Reinsurance Company (“National”) and
Skandia American Reinsurance Corporation (“Skandia”), and (3) a
Casualty Facultative Treaty Reinsurance Agreement from Skandia.
No. 20050324 2
¶2 The district court granted the Liquidator’s motion for
summary judgment, ordering Anchor Wate to return the payments to
the estate and awarding prejudgment interest at a rate of 10% per
annum. On appeal, Anchor Wate contends that the district court
erred in concluding that the payments made to Anchor Wate were
voidable preferences. Anchor Wate further contends that the
district court erred in awarding prejudgment interest at the 10%
rate specified in Utah Code section 15-5-1 (2001). We affirm the
district court’s conclusion that SAIC’s payments to Anchor Wate
constituted voidable preferences, but reverse its ruling
regarding the applicable prejudgment interest rate.
FACTUAL AND PROCEDURAL BACKGROUND
¶3 In 1985, Anchor Wate purchased a $5 million commercial
liability insurance policy from SAIC. Several years prior to
issuing the Anchor Wate policy, SAIC had purchased three separate
reinsurance policies requiring the reinsurers to reimburse SAIC
for losses covered by the respective policies.2
¶4 In September 1989, All American Pipeline Company (“All
American”) filed a lawsuit against Anchor Wate. Anchor Wate
tendered the defense of the suit to SAIC, and SAIC notified the
reinsurers. In July 1991, Anchor Wate filed suit against SAIC,
seeking damages for SAIC’s alleged bad faith refusal to defend
and settle the All American lawsuit. SAIC supervisor Rex Hess
notified the reinsurers of this action and provided them with a
legal analysis prepared by SAIC’s outside counsel advising that
SAIC tender the policy limits to Anchor Wate. There is some
evidence that the reinsurers, particularly Skandia, approved of
this tender.
¶5 SAIC indicated its intent to tender its $5 million
policy limits to Anchor Wate on July 31, 1991, and faxed the
proposed tender letter to its reinsurers six days later. On
October 30, 1991, SAIC faxed cash calls to its reinsurers
indicating that the purpose of the request was to fund the All
American claim. The next day, reinsurer Skandia issued SAIC two
checks totaling approximately $4.5 million. The checks listed
Anchor Wate and Permanent Concrete as “ceding compan[ies]” and

3 No. 20050324
referred to All American claim No. 900147. Reinsurer National
issued a check in the approximate amount of $122,000 on
November 7, 1991, which similarly indicated that it was for the
“Permanent Concrete & Anchor Clm# 900147.”
¶6 SAIC deposited these funds into its general operating
account at Zion’s Bank. Pursuant to standard practice, all but
$15,000 was swept out of this account and into another SAIC
account. On December 9, 1991, SAIC delivered a $3 million check
to Anchor Wate. Approximately a week later, SAIC and Anchor Wate
executed a “Release and Indemnity Agreement” (“Release”),
memorializing their prior agreement that SAIC would pay Anchor
Wate its $5 million policy limit in return for a release of
claims against SAIC and any connected third parties, including
SAIC’s reinsurers. SAIC and Anchor Wate subsequently modified
their agreement to allow SAIC to pay the remaining $2 million in
four equal installments of $500,000 each. On March 12, 1992,
SAIC wired the first $500,000 installment to Anchor Wate from an
account at Valley Bank.
¶7 On March 26, 1992, the Utah Insurance Department placed
SAIC into involuntary liquidation, and Anchor Wate filed a proof
of claim for the $1.5 million it was owed under the settlement
agreement. In November 1992, Anchor Wate forwarded to All
American the $3.5 million that it had received from SAIC. Some
sixteen months later, the Liquidator filed a preference action
against Anchor Wate, seeking to recover as a voidable preference
the $3.5 million that Anchor Wate had received from SAIC.
¶8 Following written discovery, Anchor Wate moved for
summary judgment, arguing that the $3.5 million it had received
from SAIC did not constitute a voidable preference under section
31A-27-321 of the Liquidation Act. The Liquidator filed a cross-
motion for summary judgment, contending that the payments did
constitute a preference and that he was entitled to interest.
¶9 On April 17, 2003, the district court denied Anchor
Wate’s motion for summary judgment and granted the Liquidator’s.
It thereafter entered judgment against Anchor Wate in the amount
of $3.5 million, plus prejudgment interest at 10% and
postjudgment interest at 3.41%. Anchor Wate sought to amend the
judgment pursuant to rule 59 of the Utah Rules of Civil
Procedure, arguing that the prejudgment interest rate applied by
the district court was erroneously high and that its accrual
should be tolled due to the Liquidator’s delay. The district
court rejected Anchor Wate’s challenge to the interest rate, but
granted a trial on the question of accrual. The parties
subsequently entered into a stipulated agreement resolving the

3 Springville Citizens for a Better Cmty. v. City of
Springville, 1999 UT 25, ¶ 22, 979 P.2d 332; Higgins v. Salt Lake
County, 855 P.2d 231, 235 (Utah 1993).
4 Norman v. Arnold, 2002 UT 81, ¶ 15, 57 P.3d 997; see also
Utah R. Civ. P. 56(c).
5 Utah Code Ann. § 31A-27-321(1)(a) (2005).
6 Wilcox v. CSX Corp., 2003 UT 21, ¶¶ 1, 9, 70 P.3d 85.
7 Id. ¶ 9 (internal quotation marks omitted).
No. 20050324 4
accrual issue. Anchor Wate timely appealed, and we have
jurisdiction pursuant to Utah Code section 78-2-2(3)(j) (2002).
ANALYSIS
¶10 We review the district court’s entry of summary
judgment for correctness.3 We recognize that “[s]ummary judgment
is appropriate only when there is no genuine issue as to any
material fact and the moving party is entitled to a judgment as a
matter of law.”4 Having set forth the applicable standard of
review, we proceed to the substantive issues. We begin by
examining whether the district court erred in determining that
the Liquidator had established the elements of a voidable
preference, enabling it to recover the $3.5 million that Anchor
Wate had received from SAIC. Concluding that the district court
appropriately granted summary judgment in favor of the
Liquidator, we then consider whether the district court applied
the correct rate of prejudgment interest. We hold that it did
not and therefore remand for application of the appropriate rate.
I. UTAH CODE SECTION 31A-27-321
¶11 We begin by considering whether SAIC’s payments to
Anchor Wate constitute voidable preferences under the Liquidation
Act.5 When interpreting the voidable preference provisions of
the Liquidation Act, we previously have stated that Utah courts
may look for guidance to federal bankruptcy law and its
interpreting precedent.6 This is so because federal bankruptcy
law and the voidable preference provisions of the Liquidation Act
share the common purpose of effectuating “proportionate
distribution of the debtor’s assets among its creditors,” thereby
preventing “a transfer to one creditor that would diminish the
estate of the debtor that otherwise would be available for
distribution to all.”7

8 Utah Code Ann. § 31A-27-321(1)(a).
9 In re Edgeworth, 993 F.2d 51, 55 (5th Cir. 1993); accord
In re Moses, 256 B.R. 641, 645 (10th Cir. 2000).
10 See United States v. Fed. Surety Co., 72 F.2d 964, 967
(4th Cir. 1934); Safeway Trails, Inc. v. Stuyvesant Ins. Co., 211
F. Supp. 227, 233 (M.D.N.C. 1962); Venetsanos v. Zucker, 638 A.2d
1333, 1339 (N.J. Super. 1994); Spencer L. Kimball, Cases and
Materials on Insurance Law 592 (1992) (“Except in unusual
situations there is no legal relationship between the reinsurer
and the original insured.”).
5 No. 20050324
¶12 To establish a voidable preference under the
Liquidation Act, there must be
a transfer of any of the property of an
insurer to or for the benefit of a creditor,
for or on account of an antecedent debt, made
or allowed by the insurer within one year
before the filing of a successful petition
for rehabilitation or liquidation . . . , the
effect of which transfer may enable the
creditor to obtain a greater percentage of
his debt than another creditor of the same
class would receive.8
¶13 The only two of these elements in dispute are whether
there was a transfer of SAIC’s property and whether this transfer
enabled Anchor Wate to receive a greater percentage of its debt
than other SAIC creditors of the same class. We therefore
confine our analysis to these issues.
A. Transfer of the Insurer’s Property
¶14 Courts generally construe the transfer of property
requirement broadly so that “all legal or equitable interests”
are considered property of the debtor’s estate.9 Accordingly,
funds paid by SAIC to Anchor Wate would be considered property of
SAIC’s estate unless Anchor Wate had a direct interest in the
proceeds at the time SAIC received them from the reinsurers. For
the reasons detailed below, we find that neither the reinsurance
agreements nor any theory Anchor Wate advances establishes such
an interest; therefore, the district court correctly determined
that the reinsurance proceeds were part of SAIC’s estate.
¶15 As a general matter, an insured has no legal interest
in reinsurance proceeds.10 Such a rule is consistent with the
purpose of reinsurance contracts, which is to indemnify the
insurer for any loss the insurer experiences, not to protect the

11 See Fed. Surety Co., 72 F.2d at 967; Safeway Trails, 211
F. Supp. at 233; Venetsanos, 638 A.2d at 1339.
12 Donaldson v. United Cmty. Ins. Co., 741 So. 2d 676, 679
(La. Ct. App. 1999).
13 Id.
14 See Fed. Surety Co., 72 F.2d at 967-68; Gen. Reinsurance
Corp. v. Mo. Gen. Ins. Co., 458 F. Supp. 1, 4-5 (W.D. Mo. 1977);
Venetsanos, 638 A.2d at 1339-40.
15 Venetsanos, 638 A.2d at 1339; see also Fed. Surety Co.,
72 F.2d at 967; Donaldson, 741 So. 2d at 682.
16 See Safeway Trails, 211 F. Supp. at 233 (indicating that
in the typical reinsurance contract, “no action will lie between
an original policyholder of insurance and the company reinsuring
that policy on behalf of the company issuing [that policy]”);
Donaldson, 741 So. 2d at 679 (“[R]einsurers and policies of
reinsurance are not susceptible to suit by third parties.”).
No. 20050324 6
insured.11 Indeed, “if the insurer chooses to purchase
reinsurance protection, it does so for its benefit alone.”12 The
reinsurance contract is not tied to the contract between the
insurer and its insured; it is a completely separate and
unrelated transaction. In fact, the original insured is seldom
aware of the existence of the reinsurer.”13
¶16 This general rule does not apply when a reinsurer has
agreed to give an original insured a direct claim to the proceeds
of a reinsurance policy.14 But any such agreement must
explicitly give the insured such an interest. Such agreements
may state that the reinsurer itself “takes charge of and manages
the defense of suits against the original insured” or in some
other way provide that the original insured directly benefits
from the reinsurance contract.15 Absent such a provision, a
reinsurer has no liability to the original insured.16
¶17 In this case, there is no agreement giving Anchor Wate
any direct claim to the reinsurance proceeds or any cause of
action against the reinsurers. The only parties to the
reinsurance agreements are the reinsurers and SAIC, and those
agreements clearly describe their purpose as indemnifying SAIC.
Indeed, they explicitly specify that SAIC’s insureds have no
rights under these agreements.
¶18 Both the Net Retained Lines Reinsurance Agreement and
the Quota Share and Excess of Loss Reinsurance Agreement provide

17 See, e.g., Safeway Trails, 211 F. Supp. at 233-34;
Donaldson, 741 So. 2d at 682.
18 In re Superior Stamp & Coin Co., 223 F.3d 1004, 1009 (9th
Cir. 2000).
7 No. 20050324
that “[t]his Agreement is to indemnify the Reinsured.” The
Casualty Agreement similarly provides that “[t]his Agreement is
solely between the Company [SAIC] and the Reinsurer . . . . In
no instance shall any insured of [SAIC], or any claimant against
an insured of [SAIC], have any rights under this Agreement.”
¶19 The Net Retained Lines Reinsurance Agreement also
specifically addresses the potential insolvency of SAIC. It
states, “Nor shall anything in this insolvency clause in any
manner create any obligations or establish any rights against the
Reinsurer in favor of any third parties or any persons not
parties to this Agreement.” Rather, in the event of insolvency,
any money owed under the agreement shall be paid “directly to the
Reinsured or its liquidator.” Language such as this is the basis
on which other courts have concluded that a third-party original
insured has no interest in the proceeds from a reinsurance
policy.17 Such provisions, bolstered by the fact that SAIC
entered into the reinsurance agreements years prior to insuring
Anchor Wate, demonstrate that the reinsurance proceeds were the
property of SAIC and therefore subject to the preference statute.
¶20 Despite this contractual language, Anchor Wate argues
that the proceeds never became part of SAIC’s estate because SAIC
did not have the “right to disburse funds to whomever it
wished.”18 To support this assertion, Anchor Wate points to
correspondence between SAIC and its reinsurers suggesting that
the reinsurance payments would go toward paying the Anchor Wate
claim. It further contends that it was in the reinsurers’ best
interests to tender the policy amounts because, under at least
one of the reinsurance agreements, the reinsurers’ liability to
SAIC “include[d] any judgment rendered against an original
insured which is in excess of the limits provided by the
Reinsured’s policy and for which the Reinsured is held liable as
a result of alleged or actual bad faith . . . in the duty to
defend.” Anchor Wate also relies on the release it signed in
which it released not only SAIC, but also its “reinsurers.”
Because the reinsurers believed that SAIC would use the
reinsurance proceeds to pay Anchor Wate, Anchor Wate argues that
the proceeds were never the property of SAIC and were therefore
not subject to the Liquidator’s preference action.

19 993 F.2d 51, 55 (5th Cir. 1993).
20 Id. at 55-56.
No. 20050324 8
¶21 Even assuming a belief on the part of the reinsurers
that the reinsurance proceeds would go toward the Anchor Wate
claim, there is still no evidence suggesting that Anchor Wate had
a direct claim to the reinsurance proceeds. Indeed, Anchor Wate
concedes that it “did not have the right to demand payment
directly from the reinsurers.” The reinsurers’ only
responsibility was to indemnify SAIC for its losses. Once they
fulfilled this responsibility, they were not required to ensure
that SAIC distributed the funds to Anchor Wate and were not
subject to bad faith exposure if SAIC failed to do so. And the
Release purporting to absolve the reinsurers from any liability
to Anchor Wate, to which the reinsurers were not party, does not
establish that Anchor Wate ever had any basis for asserting a
claim against the reinsurers in the first place. Because Anchor
Wate has not established any facts indicating that Anchor Wate
had any direct claim against the reinsurers, the district court
properly concluded that the reinsurance proceeds were the
property of SAIC.
¶22 Anchor Wate urges us to avoid this conclusion by
adopting any one of three theories pursuant to which courts have
declined to apply voidable preference statutes. We examine and
reject each of these theories, concluding that the absence of any
agreement giving Anchor Wate a direct claim to the reinsurance
proceeds is dispositive.
1. In re Edgeworth
¶23 Relying on In re Edgeworth,19 a Fifth Circuit case
involving the proceeds of a malpractice liability insurance
policy, Anchor Wate argues that the proceeds of the reinsurance
contracts never became the property of SAIC. Because the
proceeds of many liability policies are “payable only for the
benefit of those harmed by the debtor under the terms of the
insurance contract,” the Edgeworth court reasoned that the debtor
does not have “a cognizable interest in the proceeds” and,
therefore, the proceeds do not become part of the debtor’s
estate.20
¶24 We decline to apply Edgeworth’s rationale here because
we disagree with its premise. Rather, we align ourselves with
those courts holding that the proceeds of insurance policies are

21 In re Viteck, Inc., 51 F.3d 530, 534 & n.17 (5th Cir.
1995).
22 See id. at 534 n.17.
23 Edgeworth, 993 F.2d at 56.
24 In re Moses, 256 B.R. 641, 645 (10th Cir. 2000).
9 No. 20050324
part of the property of the debtor’s estate.21 Indeed,
subsequent cases from the Fifth Circuit have characterized
Edgeworth as an outlier to this general line of jurisprudence.22
¶25 Moreover, were we inclined to agree with Edgeworth’s
reasoning, it simply does not apply here. In concluding that the
insurance proceeds at issue never became part of the debtor’s
estate, the Edgeworth court relied on the fact that the policy at
issue was a liability policy. In Edgeworth, the proceeds were
“made payable” to a third party; the debtor was not a beneficiary
of the policy and had no “cognizable interest” in it.23 Neither
of these facts is present in this case, which involves an
indemnity policy that does give the debtor an interest in the
proceeds and, in fact, specifically disclaims any interest in the
original insured.
2. The Earmarking Doctrine
¶26 Anchor Wate also urges us to hold that the reinsurance
proceeds did not become part of SAIC’s estate because the funds
were “earmarked” for Anchor Wate. “Earmarking is a judicially-
created doctrine said to apply when a new creditor pays a
debtor’s existing debt to an old creditor.”24 Funds are
“earmarked” and therefore not part of the debtor’s estate where
there is
(1) the existence of an agreement between the
new lender and the debtor that the funds will
be used to pay a specified antecedent debt
[to a specific creditor],
(2) performance of the agreement according to
its terms, and
(3) the transaction viewed as a whole
(including the transfer in of the new funds
and the transfer out to the old creditor)

25 Id. at 649 (internal quotation marks omitted).
26 Id. at 650; see also In re Superior Stamp & Coin Co., 223
F.3d 1004, 1005 (9th Cir. 2000).
27 In re Francis, 252 B.R. 143, 145 (Bankr. E.D. Ark. 2000).
28 Moses, 256 B.R. at 645.
29 Id. at 646.
30 Id.; see also Collier on Bankruptcy § 547.03[2] (15th
rev. ed. 2006) (“When a third person makes a loan to a debtor
specifically to enable that debtor to satisfy the claim of a
designated creditor, the proceeds never become part of the
debtor’s assets, and therefore no preference is created.”
(emphasis added)).
No. 20050324 10
does not result in any diminution of the
estate.25
Some courts also examine the amount of control the debtor
exercised over the funds or whether “the estate was diminished by
the transfer.”26
¶27 We decline to apply the earmarking doctrine here
because it was never intended to apply to reinsurance cases. And
in any event, we conclude that Anchor Wate cannot establish the
elements of an earmarking claim.
¶28 Application of the earmarking doctrine in recent
decisions has generally been restricted to loan cases where “a
third party lends money to the debtor for the specific purpose of
paying a selected creditor.”27 Historically, the doctrine’s use
was even more limited; courts used it when a “new creditor, who
was obligated on an existing debt as a guarantor or surety,
provided the debtor with funds to pay the creditor.”28 The
doctrine is restrictive because it was created for the very
limited purpose of protecting the guarantor or codebtor who
“would be subject to double liability” should its transfer to the
debtor be considered a voidable preference.29
¶29 The earmarking doctrine was later expanded to cover
situations where “the new creditor is not a guarantor but merely
loans funds to the debtor for the purpose of enabling the debtor
to pay the old creditor.”30 But such an expansion was justified
because a third-party loan does not diminish the estate–-it

31 Collier on Bankruptcy, supra note 30, § 547.03[2] (“‘If
all that occurs in a “transfer” is the substitution of one
creditor for another, no preference is created because the debtor
has not transferred property of his estate; he still owes the
same sum to a creditor, only the identity of the creditor has
changed.’” (quoting Coral Petroleum, Inc. v. Banque Paribas-
London, 797 F.2d 1351, 1356 (5th Cir. 1986))).
32 See id.
33 Moses, 256 B.R. at 647 (quoting In re Int’l Club Enters.,
109 B.R. 562, 567 (Bankr. D.R.I. 1990)).
34 See id. at 648. But see Margot Wickman-Bennett, Note,
Earmarking in the Eighth Circuit, 79 Iowa L. Rev. 965, 976 (1994)
(arguing that it would be appropriate to expand the earmarking
doctrine to include nonguarantors).
11 No. 20050324
merely substitutes creditors.31 This same rationale does not
apply in reinsurance situations. Expanding the earmarking
doctrine to such situations would not only divorce this doctrine
from the historical policies justifying its existence, it would
create a situation where the debtor’s payment to its original
insured would directly diminish the amount of the debtor’s estate
available for other creditors.32 At least one court has warned
that “‘[e]xtension of the earmarking doctrine beyond the
guarantor situation is both unwise and unwarranted, and would
inevitably result in an inequitable treatment of creditors.’”33
¶30 The purpose of the Liquidation Act is to equitably
distribute funds among creditors. We conclude that it would be
inconsistent with both this statutory purpose and the broad scope
of the statutory language to expand the scope of the earmarking
doctrine.34
¶31 Policy arguments aside, we also decline to apply the
earmarking doctrine here because Anchor Wate cannot establish the
required elements. As has been previously explained, the
reinsurers and SAIC did not specifically agree that the
reinsurance proceeds would be targeted to pay only the Anchor
Wate claim. Rather, the reinsurance agreements provided that
third parties, such as Anchor Wate, would have no right under
them. And because there was no agreement giving Anchor Wate any
claim to the reinsurance proceeds, there could have been no
performance of such an agreement. Finally, as discussed below,
Anchor Wate cannot establish that the transfer would not result
in a diminution of the debtor’s estate because the money that

35 Moses, 256 B.R. at 650; In re Pioneer Commercial Funding
Corp., 140 B.R. 951, 955-56 (Bankr. S.D.N.Y. 1992).
36 Moses, 256 B.R. at 650.
37 See In re Superior Stamp, 223 F.3d 1004, 1008 (9th Cir.
2000).
38 Pioneer, 140 B.R. at 956; see also Collier on Bankruptcy,
supra note 30, § 547.03 (15th ed. rev. 2006) (“‘[W]e note that in
a situation where a debtor never physically controls or owns the
disputed funds, a preference is much less likely to arise.’”
(quoting Coral Petroleum, Inc. v. Banque Paribas-London, 797
F.3d 1351, 1361-62 (5th Cir. 1986))).
39 Superior Stamp, 223 F.3d at 1009.
40 Id. at 1010.
No. 20050324 12
SAIC received would have otherwise been available for
distribution to all of its creditors.
¶32 Anchor Wate similarly cannot establish an earmarking
claim under the control test. Under the control test, funds can
be earmarked only if the debtor has exercised no control over
them.35 In determining whether a debtor or an insurer has
control of funds, “courts typically consider whether the new
creditor restricted the use of the funds, whether the debtor had
physical control over the funds, and whether the debtor had the
ability to direct to whom the funds should be paid.”36 Although
physical possession alone may not necessarily demonstrate the
right to control,37 at least one court has found that a debtor
did control funds where they were deposited into the debtor’s
general checking account and not put into an identifiable,
segregated trust account.38
¶33 In this case, SAIC deposited the reinsurance funds into
its general account where, in the ordinary course of business,
they were swept into another account and commingled with other
funds. This demonstrates that SAIC “had the right to disburse
the funds to whomever it wished.”39 And even though there is
evidence that the reinsurers expected the funds to be used to pay
the Anchor Wate claim, there is no evidence suggesting that the
reinsurers advanced these funds only “on the condition” that
Anchor Wate be paid.40 Rather, Anchor Wate had no rights under
the reinsurance contracts because they provided that any funds
disbursed thereunder were intended to indemnify SAIC. SAIC
therefore had complete control over the funds, preventing
application of the earmarking doctrine.

41 In re Capital Mtg. Loan Corp., 60 B.R. 915, 918 (Bankr.
D. Utah 1986), aff’d, 99 B.R. 462 (D. Utah 1987), aff’d, 917 F.2d
424 (10th Cir. 1990).
42 Parks v. Zions First Nat’l Bank, 673 P.2d 590, 599 (Utah
1983).
43 See In Re Unicom Computer Corp., 13 F.3d 321, 324 (9th
Cir. 1994).
44 See, e.g., id. at 322 (involving a case where a creditor
mistakenly transferred money to a debtor); Corp. of the President
of the Church of Jesus Christ of Latter-day Saints v. Jolley, 467
P.2d 984, 984 (Utah 1970) (involving a constructive trust that
was placed on a third person after she was given a stolen
automobile).
13 No. 20050324
3. Constructive Trust
¶34 Anchor Wate next asserts that the reinsurance proceeds
were never the property of SAIC because SAIC was merely holding
them in constructive trust for Anchor Wate. Courts recognize a
constructive trust as a matter of equity where there has been
(1) a wrongful act, (2) unjust enrichment, and (3) specific
property that can be traced to the wrongful behavior.41 Such
trusts are usually imposed where injustice would result if a
party were able to keep money or property that rightfully
belonged to another.42 In bankruptcy, where a debtor holds funds
in constructive trust, those funds are not subject to preference
claims.43 But we decline to impose a constructive trust here
because Anchor Wate has failed to establish the requisite
elements.
¶35 First, Anchor Wate has failed to show the existence of
any wrongful act. To establish a wrongful act under Utah law, an
entity must have obviously received funds by mistake or
participated in active or egregious misconduct.44 In this case,
no wrongful act has been perpetrated by SAIC against Anchor Wate.
The reinsurance agreements expressly state that third parties,
like Anchor Wate, have no interest in any reinsurance proceeds.
SAIC legally received the reinsurance proceeds and deposited them
into its own bank account. Although Anchor Wate suggests that it
should have been paid before SAIC made cash calls on the
reinsurers, the reinsurance agreements specifically state that
SAIC has a right to receive an advance of funds on claims over
$100,000. And even assuming some fraud was perpetrated by SAIC
in the receipt of these funds, the fraud was perpetrated against

45 First Sec. Bank of Utah v. Gillman, 158 B.R. 498, 507-08
(D. Utah 1993).
No. 20050324 14
the reinsurers, not Anchor Wate. In short, Anchor Wate cannot
show illegal or egregious conduct directed against its interests.
¶36 Anchor Wate likewise cannot show that SAIC was unjustly
enriched. Under its contract with the reinsurers, SAIC was
entitled to indemnification for amounts paid on Anchor Wate’s
claims. Although SAIC’s liquidation allowed it to avoid paying
off Anchor Wate’s claim in full, such a circumstance does not
constitute unjust enrichment. The same rationale applies here as
in the bankruptcy context, where the federal courts have
recognized that
[w]henever a debtor retains a benefit
afforded it by a creditor without paying that
creditor in full, the estate is arguably
“unjustly enriched.” Yet this situation is a
result of a congressional policy choice
incorporated into the Bankruptcy Code, and
born of the reality that an insolvent debtor,
by definition, is unable to satisfy in full
the debts owed to its creditors. In light of
this congressional policy choice and the
reality that other similarly situated
creditors are also receiving less than full
payment of their claims, the estate’s
retention of the Disputed Funds subject to
pro-rata distribution is not “unjust” under
the circumstances.45
¶37 We accordingly hold that SAIC was not unjustly enriched
in the manner contemplated by the unjust enrichment prong of the
constructive trust test when it retained the reinsurance
proceeds. Having determined that Anchor Wate can establish
neither a wrongful act nor unjust enrichment, we conclude that
Anchor Wate did not establish the elements required for the
imposition of a constructive trust. We therefore need not
address the third requirement for imposition of a constructive
trust--the tracing requirement.
¶38 In summary, Anchor Wate cannot establish the elements
of a constructive trust or any other theory that would provide it
with a direct claim to the reinsurance proceeds. We therefore
hold that the reinsurance proceeds were property of SAIC’s estate
and that this property was transferred when it was passed to
Anchor Wate.

46 Collier on Bankruptcy, supra note 30, § 547.03.
47 Wilcox v. CSX Corp., 2003 UT 21, ¶ 26, 70 P.3d 85
(internal quotation marks and brackets omitted).
48 9B Am. Jur. 2d Bankruptcy § 1916 (1999).
15 No. 20050324
B. The Transfer Enabled Anchor Wate to Receive a Greater
Percentage of Its Debt Than Other Creditors of the Same Class
¶39 Having determined that the reinsurance proceeds were
part of SAIC’s estate, we now address whether SAIC’s transfer of
the $3.5 million to Anchor Wate enabled Anchor Wate to receive a
greater percentage of its debt than creditors of the same class,
thus allowing the Liquidator to establish a voidable preference
under the Liquidation Act.
¶40 As a general matter, a transfer enables a creditor to
receive more than another similarly situated creditor when the
transfer “diminish[es] the fund to which other creditors can
legally resort for the payment of their debts, thus making it
impossible for other creditors of the same class to obtain as
great a percentage as the favored one.”46 Concerns about equity
necessitate the well-recognized policy that “a debtor should not
be able to make transfers on the eve of liquidation that deplete
the debtor’s assets to the detriment of the other creditors.”47
In determining whether there was such a voidable transfer, “[t]he
focus of the court must be on the effect of the payment.”48
¶41 In this case, the effect of SAIC’s payment to Anchor
Wate was to directly deplete SAIC’s estate. The $3.5 million
that would have been available for division among all of SAIC’s
creditors went solely to Anchor Wate. We therefore hold that the
entire $3.5 million must be brought back into SAIC’s estate to be
distributed pro rata among all creditors of the same class.
II. THE INTEREST RATE SPECIFIED IN UTAH CODE SECTION 15-1-1
DOES NOT APPLY TO PREFERENCE ACTIONS UNDER THE LIQUIDATION ACT
¶42 Having upheld the district court’s judgment on the
preference issue, we consider whether the district court applied
the appropriate rate of prejudgment interest. The Liquidation
Act does not specify the rate of prejudgment interest applicable
to judgments obtained under its voidable preference provisions.

49 Utah Code Ann. § 15-1-1(2) (2005).
50 Id. § 15-1-1.
51 Id. § 31A-27-321 (2002).
No. 20050324 16
The district court therefore applied the 10% per annum rate
specified by Utah Code section 15-1-1(2).49
¶43 Title 15 of the Utah Code is entitled “Contracts and
Obligations in General.” The interest rate applied by the
district court is that specified in chapter 1 of title 15.
Chapter 1 provides in relevant part:
15-1-1. Interest rates -- Contracted rate --
Legal rate.
(1) The parties to a lawful contract
may agree upon any rate of interest for the
loan or forbearance of any money, goods, or
chose in action that is the subject of their
contract.
(2) Unless parties to a lawful contract
specify a different rate of interest, the
legal rate of interest for the loan or
forbearance of any money, goods, or chose in
action shall be 10% per annum.50
The question presented by Anchor Wate’s challenge to the interest
rate is whether the 10% default rate specified by section
15-1-1(2) is applicable to the Liquidator’s judgment obtained
pursuant to the voidable preference provisions of the Liquidation
Act.51 We conclude that it is not.
¶44 The theoretical underpinning behind section 15-1-1 is
that the parties to a lawful contract may agree upon any rate of
interest for the loan or forbearance of money, goods, or causes
of action that are the subject of their contract. Only when the
parties to a contract fail to specify a rate of interest does the
default rate specified in section 15-1-1(2) apply. But this case
is not a contract action. There was no contract between Anchor
Wate and the Liquidator and therefore no opportunity for the
parties to agree upon an applicable rate of interest. The
Liquidator’s judgment is not grounded on any voluntary
undertaking by Anchor Wate. Rather, it is the result of the
statutory power given the Liquidator as he attempts to fulfill
his statutory mandate of achieving an equitable distribution of

52 886 P.2d 514, 525 n.13 (Utah 1994).
53 Id. (suggesting that the plain language of section 15-1-1
indicates that the section was intended to apply only to a “‘loan
or forbearance’” of “‘money, goods or chose in action’” (quoting
Utah Code Ann. § 15-1-1)).
54 Wilcox v. CSX Corp., 2003 UT 21, ¶¶ 1, 9, 70 P.3d 85;
see also Norman J. Singer, Statutes and Statutory Construction
§ 52.01 (6th ed. 2002) (indicating that it is appropriate to use
similar statutes from other jurisdictions to aid in
interpretation).
55 See, e.g., Milchem v. Fredman (In re Nucorp Energy,
Inc.), 902 F.2d 729, 734 (9th Cir. 1990) (applying the rate set
forth in 28 U.S.C. § 1961(a)); Napolitano v. Vibra-Conn, Inc. (In
re R.J. Patton Co.), 348 B.R. 618, 627 (Bankr. D. Conn. 2006)
(same); Great Point Intermodal, LLC v. Norfolk S. Corp. (In re
(continued...)
17 No. 20050324
SAIC’s estate. And there is nothing to suggest that the default
interest rate specified in section 15-1-1(2) is consistent with
this statutory mandate.
¶45 This court has previously expressed the view that the
interest rate specified in section 15-1-1(2) does not necessarily
even apply in all contract cases. In Consolidation Coal Co. v.
Utah Division of State Lands & Forestry,52 we suggested, albeit
in dicta, that we had “serious reservations about . . . [cases]
that purport[] to tie prejudgment interest rates in all contract
cases to the section 15-1-1 rate” because this section was meant
to apply only to loans or forbearances in contract actions.53
¶46 Just as the default rate specified in section 15-1-1(2)
does not automatically extend to all judgments obtained in
contract cases, it does not automatically apply to all judgments
based on statute where the legislature has failed to specify the
applicable rate. And in this case, we conclude that the more
appropriate prejudgment interest rate is the one applicable to
preference claims under federal bankruptcy law.
¶47 As we have already discussed, when filling in gaps or
interpreting ambiguous provisions of the Liquidation Act, we look
to the preference provisions of federal bankruptcy law, which
have the same purpose as the preference provisions of the
Liquidation Act.54 Therefore, when calculating the prejudgment
interest on remand, the district court should use the rate
applied by the majority of federal courts to judgments obtained
in federal preference actions, which is the federal postjudgment
interest rate.55 The federal courts have not been unanimous in

55 (...continued)
Great Point Intermodal, L.L.C.), 334 B.R. 359, 363-64 (Bankr.
E.D. Pa. 2005) (same); Gouveia v. RDI Group, Inc. (In re Globe
Bldg. Materials, Inc., 325 B.R. 253, 263-64 (Bankr. N.D. Ind.
2005) (same); Official Comm. of Unsecured Creditors of
Cyberrebate.com, Inc. v. Gold Force Int’l, Ltd. (In re
Cyberrebate.com), 296 B.R. 639, 645 (Bankr. E.D.N.Y. 2003)
(same); Kelley v. Chevy Chase Bank (In re Smith), 236 B.R. 91,
104 (Bankr. M.D. Ga. 1999) (same); Sucre v. MIC Leasing Corp. (In
re Sucre), 226 B.R. 340, 350 (Bankr. S.D.N.Y. 1998) (same); Floyd
v. Dunson (In re Rodriguez), 209 B.R. 424, 434 (Bankr. S.D. Texas
1997) (same); Dicello v. Jenkins (In re Int’l Loan Network), 160
B.R. 1, 20 (Bankr. D.D.C. 1993) (same); White v. Bradford (In re
Tax Reduction Inst.), 138 B.R. 325, 326 (Bankr. D.D.C. 1991)
(same); Turner v. Davis, Gillenwater & Lynch (In re Inv.
Bankers), 135 B.R. 659, 669 (Bankr. D. Colo. 1991) (same); Rieser
v. Landis & Gyr Powers, Inc. (In re Bownic Insulation
Contractors, Inc.), 134 B.R. 261, 267 (Bankr. S.D. Ohio 1991)
(same); Bash v. Schwartz (In re B. Schwartz Furniture Co.), 131
B.R. 623, 626 (Bankr. N.D. Ohio 1991) (same); Yoder v. T.E.L.
Leasing (In re Suburban Motor Freight, Inc.), 124 B.R. 984, 1006
& n.21 (Bankr. S.D. Ohio 1990) (same); Ellenberg v. Mercer (In re
Home Co.), 108 B.R. 357, 360 (Bankr. N.D. Ga. 1989) (same);
Parmelee v. Bank of Greensburg (In re L&T Steel Fab., Inc.), 102
B.R. 511, 520-21 n.9 (Bankr. M.D. La. 1989) (“28 U.S.C. § 1961
provides the most appropriate standard for fixing the rate of
prejudgment interest upon federal claims . . . .”); Gilbert v.
Suburban Athletic Club (In re Dayton Cir. Cts. No. 2), 80 B.R.
434, 440 (Bankr. S.D. Ohio 1987) (same); Wilson v. First Nat’l
Bank (In re Missionary Baptist Found. of Am.), 69 B.R. 536, 539
(Bankr. N.D. Tex. 1987) (“In the absence of a specific statutory
directive . . . the Bankruptcy Court should apply the interest
provided for in 28 U.S.C. § 1961 both pre- and post-judgment.”);
Schwarz v. Equitable Bank (In re Express Litig.), 65 B.R. 952,
962 (Bankr. D. Md. 1986) (applying the rate set forth in 28
U.S.C. § 1961); Crampton v. Dominion Bank of Bristol (In re H.P.
King Co.), 64 B.R. 487, 491-92 (Bankr. E.D.N.C. 1986) (same);
Prod. Steel, Inc. v. Sumitomo Corp. (In re Prod. Steel), 60 B.R.
4, *5 (Bankr. M.D. Tenn. 1986) (same).
56 Key v. Liquid Energy Corp., 906 F.2d 500, 506 (10th Cir.
1990) (awarding the plaintiff prejudgment interest using two
different rates); Milchem, 902 F.2d at 734 (remanding the case to
the trial court for consideration of the appropriate prejudgment
rate); Critchlow v. First UNUM Life Ins. Co., 377 F. Supp. 2d
337, 347-49 (W.D.N.Y. 2005) (awarding prejudgment interest to a
(continued...)
No. 20050324 18
their selection of the relevant date for the purpose of setting
the interest rate.56 Various courts have set the interest rate

56 (...continued)
judgment for the denial of an insurance claim at the average
federal postjudgment interest rate in effect over the period from
the initial denial of the plaintiff’s claim through the date of
entry of judgment); Prod. Steel, Inc. v. Sumito Corp. (In re
Prod. Steel, Inc.), 60 B.R. 4, 4 (Bankr. M.D. Tenn. 1986)
(awarding interest at the prevailing rate at the time the action
was commenced).
57 See, e.g., Ellenberg, 108 B.R. at 361 (basing the
prejudgment interest rate on the “coupon issue yield equivalent”
for the week prior to the date of demand); Crampton, 64 B.R. at
492 (setting the interest rate on the date immediately prior to
“the date of demand for payment”); Prod. Steel, Inc., 60 B.R. at
4 (citing the district’s rule that “the rate of prejudgment
interest is equal to the coupon issue yield equivalent . . . of
the average accepted auction price for the last auction of 52
week U.S. Treasury Bills settled immediately prior to the date of
demand.”).
58 See, e.g., Great Point Intermodal, LLC, 334 B.R. at 364
(setting the prejudgment interest rate from the filing date,
pursuant to § 1961); Covey v. Northwest Cmty. Bank (In re Helen
Gallagher Enters., Inc.), 126 B.R. 997, 1005 (Bankr. C.D. Ill.
1991) (setting the interest rate for the “coupon issue yield
equivalent” from the “auction of 54-week [sic] United States
Treasury bills” for the period prior to the date of filing);
Wilson, 69 B.R. at 538-39 (basing the interest rate on the § 1961
auction rate on the date of filing).
59 See Yoder, 124 B.R. at 1006 (“Such pre-judgment interest
shall be computed in accordance with the provisions of § 1961.
Pursuant to this provision, the post-judgment interest rate is
calculated at a rate equal to the coupon issue yield of a 52-week
Treasury Bill set immediately prior to entry of the order.”).
60 Critchlow, 377 F. Supp. 2d at 348 (determining the
prejudgment interest rate by averaging the weekly § 1961 interest
rate from the initial insurance claim denial to the date of
(continued...)
19 No. 20050324
from the date of demand,57 the date of filing,58 or the date of
judgment.59 While setting the interest rate from one particular
day is advantageous in its simplicity, it could arbitrarily
create a windfall for either party during the pendency of the
action. Consequently, we hold that the most accurate measure of
prejudgment interest for judgments obtained pursuant to the
voidable preference provisions of the Liquidation Act is the
average federal postjudgment interest rate in effect from the
date of filing to the date of judgment.60 Parties can easily

60 (...continued)
judgment).
61 Selected Interest Rates (Weekly), Federal Reserve
Statistical Release (Federal Reserve website),
http://www.federalreserve.gov/releases/h15/.
62 In re F.A.S.I., Inc., 48 B.R. 147, 148 (Bankr. D. Conn.
1985) (rejecting the application of the state statutory rate of
interest in favor of the calculation under federal law “based on
prevailing market rate for the time value of money”).
No. 20050324 20
calculate the appropriate prejudgment interest rate by adding
together the weekly postjudgment interest rates from the date of
filing to the date of judgment, which are available at the
Federal Reserve’s website,61 and then dividing the total by the
number of weeks the action has been pending. Consistent with
federal law, the determination of whether the prejudgment
interest should be compounded annually lies within the sound
discretion of the trial court.
¶48 Application of the federal rate will adequately
compensate the estates of insolvent insurers for the time value
of money without creating an incentive for insurance liquidators
to delay prosecution of voidable preference claims in order to
obtain returns greater than they could have reasonably expected
to earn in the market.62 It will also more adequately take into
account the practical reality of defendants in preference actions
that, like Anchor Wate, dispose of the proceeds obtained from the
estate of the insolvent insurer in the ordinary course of
business prior to the liquidation of the insurer or the
initiation of a preference claim by the Liquidator. Such
defendants lack the ability to invest the proceeds at all. Under
such circumstances, application of the default rate specified in
section 15-1-1(2) could be entirely punitive and, in fact, may
unjustly enrich other creditors at the expense of the preference
defendant. In the event that the Utah legislature prefers a rate
of interest different from the federal rate, it may amend the
Liquidation Act to specify the applicable rate.
CONCLUSION
¶49 There was no agreement between the reinsurers and SAIC
giving Anchor Wate any direct claim to the reinsurance proceeds,
and the lack of such an agreement is fatal to all of Anchor
Wate’s legal theories. We therefore affirm the district court’s
decision that the Liquidator is entitled to recover the $3.5
million paid to Anchor Wate under the voidable preference
provision of the Liquidation Act. We reverse the district
court’s decision to apply a prejudgment interest rate of 10% per

21 No. 20050324
annum to the voidable preference. Rather, the appropriate rate
is the one applicable in federal preference actions. We
therefore affirm in part, reverse in part, and remand for further
proceedings in accordance herewith.
---
¶50 Chief Justice Durham, Justice Durrant, Justice Nehring,
and Judge Backlund concur in Justice Parrish’s opinion.
¶51 Having disqualified himself, Associate Chief Justice
Wilkins does not participate herein; District Judge John C.
Backlund sat.