RHODE ISLAND COURT APPROVES COMMUTATION OVER CHALLENGE TO CONSTITUTIONALITY
GTE Reinsurance Company, in runoff since 1990, proposed a commutation plan regarding its remaining potential property-casualty related liabilities. The commutation plan is essentially a statutory “solvent scheme of arrangement.” Two of GTE’s cedents objected. One challenged Rhode Island’s Voluntary Restructuring of Solvent Insurers Act, G.L. 1956 § 27-14.5-1 as unconstitutional under the Contract Clause and Due Process Clause of the Rhode Island and federal Constitutions. The court rejected the challenges, crediting the large majority of cedents (34 out of 39) that voted in favor of the plan, and noting that, while some rights under the contracts between the objectors and GTE would be impaired by the commutation, they would not be “substantially impaired” – the standard for a contract clause challenge. The court also found the Act to have a legitimate public purpose, and to employ reasonable and necessary means to carry out that purpose. It rejected the due process argument for essentially the same reasons, noting that a “Contract Clause inquiry is more searching than the rational basis review employed in a due process challenge.” In re GTE Reinsurance Co. Ltd., No. PB 10-3777 (R.I. Super. Ct. Apr. 25, 2011).
This post written by John Pitblado.
