REHABILITATION PLAN DISAPPROVED FOR FAILURE TO INCLUDE SURETY BOND LIABILITIES IN PRIORITY CLASS OF “CLAIMS UNDER POLICIES”
On July 22, 2009 and November 2, 2011, we reported on certain disputes involving long-time rehabilitating insurer, Frontier Insurance Company. Frontier’s rehabilitator recently submitted to the supervising court a plan of rehabilitation that included a runoff of Frontier’s liabilities, with additional protection for liabilities deemed “claims under policies.” Frontier’s plan defined such claims as those made under policies of insurance, but excluded claims under its significant book of surety bonds, fidelity bonds, and similar instruments. Based on this definition, the rehabilitator contended that Frontier’s surety liabilities were entitled to low priority and could be discounted. The court rejected the proposal and disapproved the plan, siding with objectors who contended that the proposed definition of “claims under policies” unlawfully discriminated within a single priority class of Frontier’s liabilities. Surety claims fall within the same class as insurance claims, and must be paid to the same extent as all other traditional insurance claims. The court ordered the rehabilitator to either propose a revised plan or apply for an order of liquidation. In re Frontier Insurance Co., Index No. 97-06 (N.Y. Sup. Ct. May 23, 2012).
This post written by Michael Wolgin.
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