June 1, 2001 Reliance Insurance (PA)

Rehabilitation Order Issued

On May 29, Pennsylvania Insurance Commissioner M. Diane Koken placed the Reliance Insurance Company in rehabilitation. According to a Pennsylvania Department of Insurance press release, a decision on whether to keep the company in rehabilitation or to proceed with liquidation will be made in the coming weeks and months. The company is domiciled in Pennsylvania and wrote predominately workers' compensation, private and commercial auto, and personal liability insurance in all 50 states. Its direct premium written totaled approximately $1.5 billion in 1999.

Although Reliance wrote some accident and health business, efforts were made by the company in 2000 to transfer much or all of that business to other carriers. At this time, it is not clear what, if any, remaining A&H business is still on Reliance's books. As a provisional matter, MPC Chair William Falck has asked Tad Rhodes (OK) to establish a Reliance Task Force and working group to study and respond as necessary to the implications of Reliance's rehabilitation for the life and health insurance guaranty associations.

Task Force Chair - Tad Rhodes;   Staff Contact -

SC Association Prevails in Liberty Life Case

This case involved a coverage dispute regarding certain investment contracts known as Reserve Deposit Fund Agreements (RDFAs), which were sold by Liberty Life Insurance Company. In a May 11, 1998 decision, the South Carolina Court of Appeals affirmed the lower court's finding that the RDFAs were not "annuities" or "contracts supplemental to annuity contracts" and therefore were not covered by the South Carolina guaranty association act. Rehearing was denied by the Court of Appeals on June 18, 1998. Thereafter, on February 3, 2000, more than a year and a half after the Court of Appeals decision, the South Carolina Supreme Court granted Liberty Life's request to review the Court of Appeals' decision. Argument was heard on October 3, 2000. On April 2, 2001, the South Carolina Supreme Court affirmed the Court of Appeals' decision in favor of the Association. In its opinion, the court explained that the RDFAs at issue in this case are not annuities but merely provided the trustees with an option to purchase annuities, further noting that the court would not expand the statutory definition of annuity to include such options.

  Staff Contact - Joni Forsythe

Court Rejects "Beneficial Ownership" Theory For GICs

This case involves a claim by the Gilman Paper Company Deferred Compensation Plan (the "Plan") seeking coverage for a Guaranteed Investment Contract ("GIC") issued by ELIC in 1987. The GIC was originally held by the Plan's Maryland-based Trustee. In 1990, the Trustee was replaced by a New York resident. The Georgia Association denied coverage for the GIC on the grounds that it is an unallocated annuity held by a non-resident plan trustee, and is therefore not covered under the Georgia statute.

After having received estate distributions equal to approximately 80% of the (pre-insolvency) contract value of the GIC, the Plan filed suit against the Association in Georgia Superior Court to collect the balance; approximately $700,000. In support of its claim, the Plan argued, among other things, that the GIC is an allocated annuity, and that Georgia resident plan participants qualify for coverage as the beneficial owners of the GIC. On May 17, 2000, the court heard argument on the plaintiff's motion for summary judgment and the Georgia Association's motion to dismiss. On July 1, 2000, an order of judgment for the plaintiff was entered by the Superior Court without opinion or explanation.

The Association then filed a Notice of Appeal and asked that NOLHGA submit an amicus curiae brief supporting its position on coverage. NOLHGA's amicus brief, which was coordinated by Tad Rhodes (OK), was filed with the Georgia Court of Appeals on October 11, 2000. Oral argument was denied. On May 30, 2001, the Court of Appeals issued its decision reversing the trial court's judgment for the plaintiff. In its opinion, the Court of Appeals expressly rejects the plaintiff's beneficial ownership theory, finding instead that the contracts at issue were at all relevant times owned by a non-resident trustee and were therefore excluded from coverage under the plain language of the statute. A copy of the Court of Appeals' opinion is available upon request.

  Staff Contact - Joni Forsythe

Legal Seminar To Feature Top-Notch Speakers

NOLHGA's 10th Annual Legal Seminar, July 12 - 13th in New York City, boasts a number of featured presenters discussing topics of interest to the insurance insolvency system including:

* Lee Covington, Ohio Director of Insurance, will discuss his efforts to modernize insurance regulation in Ohio and across the country.

* Charles D. Lake, II, Senior Vice President and General Counsel of AFLAC Japan, will provide insight to the recent failure of seven Japanese insurance companies and potential changes to the insolvency protection mechanism for Japanese insurance consumers.

* Judge Robert R. Merhige, Jr. will share his experiences from his 31 year tenure on the federal bench in Virginia, in particular the A.H. Robins bankruptcy and Dalkon Shield litigation.

* Gary W. Parr, the Managing Director of Morgan Stanley Dean Witter and head of their Global Financial Institutions Group, will talk about the changing landscape of the national and international financial markets in the wake of the Gramm-Leach-Bliley Act.

* Nathaniel S. Shapo, Director, Illinois Department of Insurance, will discuss his unique perspectives on optional federal chartering and the effects of financial services modernization from the state regulatory point of view.

The deadline for seminar registration and hotel reservations is June 15th.

  Staff Contact -