Reinsurance Focus

The Pennsylvania Insurance Commissioner, Michael Consedine, moved for approval of a commutation, settlement agreement and release entered into between Reliance Insurance Company (in liquidation) and C.S.C. Assurance, Ltd. Reliance was judicially determined insolvent in 2001, whereupon the Commissioner was appointed as liquidator. C.S.C. is a Class 3A insurer and reinsurer domiciled in Bermuda, which has been in run-off for over ten years. The agreement, if approved, would settle and finalize all facultative and treaty reinsurance contracts between Reliance and C.S.C. that have not already commuted. C.S.C. has agreed to pay $5,500,000 to the Reliance estate in exchange for commuting all such claims. In re Reliance Insurance Co. (in Liquidation), Case No. 1 Rel 2001 (Pa. Commw. Ct. Nov. 19, 2012)

This post written by Ben Seessel.

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A Pennsylvania court has approved commutation agreements between Reliance Insurance Company (in Liquidation) and reinsurers Connecticut General Life Insurance Company (“Connecticut General”), Phoenix Life Insurance Company (“Phoenix”), and Hannover Rueckversicherung AG and E + S Rueckversicherung AG (“Hanover”), respectively. The Reliance Estate will receive $7,044,565 from Connecticut General and $5,017,408 from Phoenix for commuting obligations on reinsurance policies written through Unicover Managers covering workers’ compensation losses. Hanover will pay $4,790,789 to the Reliance Estate in exchange for commuting liabilities on reinsurance contracts covering various lines of business including accident and health, aviation liability, and D&O liability.

This post written by Ben Seessel.

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In a bankruptcy adversary proceeding arising out of claims made by an insurer against the debtor insurance agency/reinsurer, a court dismissed the debtor’s counterclaims for breach of fiduciary duty and fraud. The agency contended that the insurer, which itself was in rehabilitation, concealed and misrepresented its poor financial condition and austerity measures that it was taking to address it, which the agency claimed caused it to suffer financial harm and loss of good will. The court held that the agency failed to state claims beyond breach of contract because (1) the insurer was not in a “superior position” of a fiduciary simply by possessing greater knowledge of its internal operations and financial status, and (2) the agency failed to allege facts demonstrating that the insurer owed a separate legal duty to it beyond the obligations of the agency agreement. In re Black, Davis, & Shue Agency, Inc., Case No. 11-00160 (USDC Bankr. M.D. Pa. June 28, 2012).

This post written by Michael Wolgin.

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The New Hampshire Insurance Commissioner, as liquidator for The Home Insurance Company, recently settled a breach of contract suit to collect reinsurance payment from reinsurer, Repwest Insurance Company. The commissioner had alleged that Repwest waived any defenses to payment by failing to timely object to the commissioner’s notice of claim made in liquidation under a reinsured Home insurance policy. In its answer, Repwest had denied that it had received proper notice, and had asserted, among other defenses, that Repwest was entitled to setoff certain claims it had against another reinsurer against its obligations to Home. Sevigny v. Repwest Insurance Co., Case No. 1:11-cv-00405 (USDC D.N.H. Apr. 23, 2012).

This post written by Michael Wolgin.

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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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The Commonwealth Court of Pennsylvania issued an opinion vacating Pennsylvania’s Office of Open Records’ denial of a request for documents under the state’s Right-to-Know Law. Plaintiff sought records related to Reinsurance Offset Guidelines from the Pennsylvania Department of Insurance and Reliance Insurance Company, which has been in liquidation since 2001. The OOR denied the request on the basis that the documents were “internal, pre-decisional deliberations.” The court vacated the denial because the OOR did not have jurisdiction to hear this matter as Reliance’s Statutory Liquidator. The court further explained that the Pennsylvania Insurance Department, when aiding the Statutory Liquidator, and Reliance are acting pursuant to a judicial order and under the supervision of the Commonwealth Court. Because the court had appointed the state Insurance Commissioner as Statutory Liquidator, it retained general supervision over the Statutory Liquidator and the insolvent estate. Thus, all complaints regarding how the insolvency is being administered must be directed to the court, and any records can only be obtained through court order. Greenberger v. Pennsylvania Ins. Dept., No. 931 C.D. 2011 (Pa. Commw. Ct. Mar. 7, 2012).

This post written by John Black.

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A court vacated an order of the Pennsylvania Office of Open Records that denied a request for documents in the possession of the department of insurance related to the drafting of the reinsurance offset guidelines of a liquidating insurer. The OOR had found that the documents were exempt from disclosure as “internal predecisional deliberations” in the possession of the department, which was serving as the insurer’s statutory liquidator. On appeal, while the court tended to agree with the OOR’s reasoning, it found that the state disclosure law was “inapplicable to rehabilitation or liquidation proceedings because [the records] are solely within the control of the court under the Insurance Act.” As a result, the court held that it, and not the OOR, had jurisdiction over the documents relating to the drafting of the guidelines. Greenberger v. Pennsylvania Insurance Department, Case No. 931 C.D. 2011 (Pa. Commw. Ct. March 7, 2012).

This post written by Michael Wolgin.

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This time of year the major reinsurance brokers publish various market-related reports. Among the interesting recent reports are:

• Reinsurance Renewal Report (Guy Carpenter) (published in sections by industry – see the Executive Summary for an overview);
• Own Risk and Solvency Assessment (ORSA) Under Solvency II Report: ‘What Is It, and Why Is It Good For You?” (Willis Re);
• Insurance Linked Securities: Fourth Quarter Update 2011 (Aon Benfield).

This post written by Rollie Goss.

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A court affirmed the denial of W.R. Grace & Co.’s asbestos insurance claims against the liquidation estate of Grace’s insolvent excess-of-loss insurer, on the ground that Grace failed to submit timely “absolute” claims under New Jersey’s version of the Uniform Insurers Liquidation Act. Grace, which has been undergoing bankruptcy restructuring, had established a plan with a creditor’s committee to create a trust to pay asbestos claims. The plan, however, was not approved by the bankruptcy court prior to the deadline to submit excess of loss claims to the liquidation estate of Grace’s excess insurer. When Grace submitted a proof of claim to the estate, the liquidator denied the claim, relying on provisions of the Uniform Insurers Liquidation Act that permit payment of only “absolute” claims, as opposed to “contingent” claims.

Grace ultimately appealed to the state court, which affirmed. The court agreed the claims were “contingent” as “the value of the claims at issue had not been fixed by actual payment, settlement, final judgment or a claims resolution procedure approved by the federal bankruptcy court,” notwithstanding estimates provided by Grace’s expert witness. Because the estimates did not “stand on their own,” the claims could not be considered “absolute” under state precedent. The court also rejected Grace’s argument that even if the claims were contingent, they should be paid to prevent a “windfall.” The court distinguished state law, and held that, under the McCarran-Ferguson Act, federal bankruptcy law “plays no part” where the state Uniform Insurers Liquidation Act provided “a comprehensive mechanism” for the liquidation and payment of claims. Commissioner of Insurance of the State of New Jersey v. Integrity Insurance Co./W.R. Grace & Co., Case No. A-2505-10T4 (N.J. Super. Ct. App. Div. Jan. 11, 2012).

This post written by Michael Wolgin.

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Reliance Insurance Company in Liquidation (the “Liquidator”) petitioned a Pennsylvania state court for a declaratory judgment holding that Aramark Corporation must reimburse certain state guaranty associations (“GAs”) for claims allegedly improperly paid to Aramark and subsequently presented to the Reliance Estate by the GAs for payment. The Liquidator also sought a declaration that Aramark’s claims against the Estate should be given low priority. The gravamen of the dispute is that Aramark purportedly received coverage for the same claims under a contingent liability policy (“CLP”) issued by Inter-Ocean Reinsurance Company, which had been backed by Reliance collateral. The GAs intervened seeking a declaration that Aramark must exhaust the coverage limits under the CLP and reimburse them for claims that were covered by the CLP.

The court dismissed the Liquidator’s claims for lack of standing, finding that it could not sue on the GAs’ behalf, and, further, held that claim priority should be determined through the administrative process before the court gets involved. The Pennsylvania court also held that it lacked jurisdiction to adjudicate the foreign GAs’ claims, but held that the Pennsylvania Workers’ Compensation Security Fund could continue to pursue recovery of claims that were allegedly improperly paid to Aramark. Reliance Ins. Co. in Liquidation v. Aramark Corp., Case No. 5 REL 2008 (Pa. Commw. Ct. Dec. 9, 2011).

This post written by Ben Seessel.

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