Ohio Supreme Court To Determine Distribution Priority of Reinsurance Claims

The Ohio Supreme Court has accepted the appeal of a case involving the interpretation of the Ohio distribution priority scheme. This litigation arose out of the Ohio General Insurance Company insolvency and was initiated by a reinsurance creditor seeking to challenge the liquidator's classification of its reinsurance claims as Class 5 (general creditor) claims under Ohio's priority statute. The reinsurer argued that claims arising under the reinsurance contracts constitute "claims under policies" within the meaning of the priority statute and are therefore entitled to treatment as Class 2 policyholder-level claims.

The trial court affirmed the liquidator's classification, finding legislative intent to afford direct policyholders priority over reinsurance claims. Thereafter the court of appeals reversed, concluding instead that the term "policies" is sufficiently broad to include all contracts of insurance. Having found the statutory language to be clear and unambiguous based on the broad definition of the term "policy" as set forth in Black's Law Dictionary, the court concluded that arguments based on legislative intent were not relevant. Notwithstanding, the court went on to state that the lack of an express statutory exclusion for reinsurance from the policyholder class would be persuasive of legislative intent to include reinsurance at that priority level. In reaching its conclusions, the court of appeals rejected the reasoning set forth in case law from other states finding reinsurance claims to be ineligible for policy-level treatment based on public policy grounds.

In October 2001, the liquidator filed a request for review of the court of appeals's decision by the Ohio Supreme Court. NOLHGA, the NAIC, and the NCIGF each filed amicus briefs in support of the liquidator's request for review. Not surprisingly, the reinsurer filed a brief in opposition to the appeal, arguing that the court should not accept this case for review because "it is simply not one of public or great general interest." By order dated February 6, 2002, the Ohio Supreme Court ruled in favor of allowing the appeal, notwithstanding the reinsurer's opposition.

Planning For Legal Seminar Underway

On February 8, the Legal Seminar Planning Committee held its first teleconference to develop an agenda for NOLHGA’s 11th Annual Legal Seminar, which will be held at the Drake Hotel in Chicago on August 15 and 16.

The Planning Committee is made up of the following individuals: Jack Falkenbach (Chair), John Colpean, David Martin, Jim Mumford, Frank O'Loughlin, Noreen Parrett, Tad Rhodes, Charlie Richardson, and Mike Surguine. Suggestions for speakers and/or topic ideas are always appreciated. Please call Aimee Frye at 703.787.4115 or e-mail Meg Melusen at [email protected] with suggestions or if you have any questions about the Legal Seminar.

Falck Analyzes GA Annual Reports

At the January MPC Meeting in Savannah, Ga., MPC Chair William Falck gave a brief presentation summarizing the results of his informal survey of guaranty association annual reports. He noted that every association has a statute requiring it to submit an annual report (usually by May 1) and that this requirement is also present in the NAIC Model Act.

Falck said that guaranty associations usually submit an independent auditor's report and also provide a report on current activities. Since there are no precise requirements on what this report must include, the amount of detail and even the topics covered vary from association to association (he contacted 35 for the survey).

According to Falck, association annual reports range anywhere from 2 to 100+ pages. All contain the same basic information: a list of Board members and terms, a report on open estates, overall financial information, and information on assets and recoveries. However, some associations choose to include additional information, such as an explanation of how the association Board is selected, a breakdown of financial data by estate, meeting minutes, and even detailed narrative reports on each insolvency. Again, since there are no detailed requirements spelling out the form of the reports, the variations from association to association are significant.

In conducting the survey, Falck compiled a number of guaranty association annual reports; a representative sampling of these reports will be posted on the NOLHGA Web site in the near future.

Melusen Promoted to Counsel

Effective January 1, Meg Melusen has been promoted to counsel. Melusen, who joined NOLHGA as assistant counsel in September 1998, is the staff contact for the ELIC, American Chambers (with Peter Gallanis), Consumers United, and NHL insolvencies and is also the Legal Committee staff contact for the NOLHGA Annual Legal Seminar, Annotated Model Act, and Coverage Issues Subgroup. Please join us in congratulating Meg.

Joyce Fleming Leaves NOLHGA

Joyce Fleming, NOLHGA's receptionist for almost six years, has decided to leave NOLHGA to pursue other interests. On behalf of NOLHGA's staff and members, we thank Joyce for her years of hard work and wish her well in her future endeavors. Her last day is February 15.