National Affiliated Investors Life

Initial Closing Completed

The initial closing of the assumption reinsurance agreement among guaranty associations, NAIL, Citizens Security Life and its affiliate, United Liberty Life, was completed on July 7. The closing was completed utilizing June 30 values. Final closing schedules reflecting June 30 values will be mailed to affected guaranty associations within the next two weeks, and any over-funding will be returned.

Task Force Chair -Chuck Gullickson;   Staff Contact - Paul Peterson National Heritage Life

Trust Distribution Made

During the week of July 4, an $8.4 million distribution was made from the NHL Trust to the 23 affected guaranty associations. This was the seventh Trust distribution to affected guaranty associations.

Task Force Chair -Dan Orth;   Staff Contact - First National Life (AL)

Court Reverses Judgment in American Pioneer Case

In a May 5, 2000 opinion, the Alabama Court of Civil Appeals reversed a lower court judgment for the Receiver of First National, finding, among other things, that the representations and warranties contained in the assumption reinsurance agreement survived closing and could form the basis of a subsequent claim on the part of the assuming carrier.

This case arises out of the 1996 assumption reinsurance agreement pursuant to which First National's Medicare Supplement business and certain life policies were transferred to American Pioneer Life Insurance Company. Neither NOLHGA nor the state guaranty associations were party to the assumption agreement. Upon completing its review of the transferred policies, American Pioneer discovered that statutory reserves on the life policies had been miscalculated, and were approximately $194,200 more than represented in the assumption agreement. American Pioneer filed a claim with the Receiver for the reserve deficiency. In addition, American Pioneer was successful in recovering approximately $100,400 in overpaid claims owed to the estate, and asked to offset from the recovered funds its administrative costs incurred in pursuing the recoveries.

The Receiver filed a "Petition for Instructions" with the circuit court seeking a determination as to whether it was required to pay the reserve deficiency or to allow the offset of costs. With respect to the reserve deficiency claim, the Receiver argued that the assumption agreement provided no mechanism for post-closing adjustments to reserves, and therefore provided no remedy for the assuming carrier other than the right to refuse to close. Conversely, American Pioneer argued that, under the terms of the agreement, all representations and warranties were to survive the closing, and that the agreement provided a remedy for breach of contract or breach of warranty allowing recovery for the reserve deficiency. With respect to the costs incurred in recovering First National's overpaid claims, the Receiver argued that American Pioneer had not been asked to pursue the recoveries on behalf of the estate. The Receiver further disputed the nature and validity of the expenses claimed, and denied any right of offset against the recovered funds.

The circuit court granted summary judgment in favor of the Receiver on both counts.

On appeal, the court reversed the summary judgment finding that the provision in the agreement for survival of representations and warranties was intended to create a remedy for situations such as the reserve deficiency, and that summary judgment on the issue of offset was improper in light of the existing dispute as to material facts regarding the nature of the expenses and the circumstances under which the recovery efforts were undertaken.

The case was remanded for further proceedings consistent with the appellate court decision.

Task Force Chair -Mike Marchman;   Staff Contact - Joni Forsythe

Centennial Life Added to MPC Schedule

In addition to the meeting schedule published in last week's Weekly Wire, the Centennial Life Task Force will be meeting on Wednesday, August 16 from 5:00-6:00 pm.

CALENDAR/CONFERENCE CALLS

July 20-21 NOLHGA Legal Seminar, Boston, MA

August 1 NOLHGA Compensation Committee Meeting, Denver, CO

August 1 NOLHGA Finance Committee Meeting, Denver, CO

August 1-2 NOLHGA Board of Directors Meeting, Denver, CO

August 16-18 NOLHGA MPC Meeting, San Francisco, CA