Kentucky Central Life (KY)
NOLHGA Files Amicus Brief
At the request of receiver's counsel, NOLHGA has filed an amicus curiae brief in connection with litigation initiated by the receiver to recover approximately $100 million owed to KCL under certain personal guarantees. The issue of national interest in this case is the ability of the receiver to rely on the books and records of the insolvent company and not be bound by secret oral side agreements that purport to excuse performance of obligations to the insolvent company.
The defendants in this case executed 12 personal guarantees totaling approximately $100 million to support certain real estate loans made by KCL to companies controlled by the defendants. The guarantees were fully executed and duly recorded on KCL's books. Following KCL's insolvency, the receiver brought suit to collect under the defendants' personal guarantees. At trial, the defendants claimed that performance under their personal guarantees was excused in accordance with the terms of certain alleged secret oral side agreements between the defendants and KCL's former president, pursuant to which the defendants were given assurances that the guarantees would not be enforced against them.
The trial court ruled in favor of the defendants concluding that the oral side agreements reformed the guarantees and excused defendants' obligations thereunder. Following the court's analysis, the guarantees were not enforceable by KCL, and therefore were not enforceable by the receiver, since the receiver stands in the shoes of KCL for the purpose of pursuing such claims and can have no greater rights than KCL would have had. On appeal, NOLHGA has joined the receiver in arguing that to bind the receiver to undisclosed oral side agreements violates principles of law and rewards the defendants for their participation in the fraudulent agreements at the expense of policyholders and state guaranty associations. Hearings on this matter have not yet been scheduled.
Task Force Chair;- John Colpean; Staff Contact - Joni Forsythe Centennial Life (KS)Claim Batches 15 and 16 Complete
The receiver completed batches 15 and 16 of Centennial Health Block claims in February. Batch 15 included 2,471 claims totaling $917,000, and batch 16 included 2,443 claims totaling $1,174,000. Total claims approved for payment since inception of the insolvency now total 58,000 for $15,600,000. Through batch 16, only four insureds have claims that exceed guaranty association limits.
Cumulative reports of claims through batch 16 were sent this week to 18 guaranty associations who had requested them. Electronic copies of claim batches are now available, and were sent March 4 for delivery March 5 to those guaranty associations who had requested them.
Separately, Disability Management Alternatives, the company handling LTD claims, mailed benefit checks March 3. DMA faxed claim reports to GAs that write their own benefit checks on March 3. All other GAs should receive claim reports by March 8. In the future, DMA will mail checks for receipt on the first of each month.
Task Force Chair - Mark Femal; Staff Contact -Legal Committee Meeting
The NOLHGA Legal Committee's first meeting of the year was held on February 25 and 26 in Tampa. Among actions taken, the Committee unanimously approved NOLHGA's filing of an amicus brief in Quackenbush v. Missouri Guaranty Association (see related story), formed a subgroup to assist NOLHGA staff consider an appropriate response to the Clinton Administration's proposal to tax the investment income of 501(c)(6) organizations (See related story), and approved the filing of a request for a US Department of Labor information letter addressing the assignability of ERISA claims to guaranty associations. The Committee engaged in extensive discussion on planning issues for the 1999 Legal Seminar (to be held in Snowmass Colorado), and heard reports from the Claims Valuation, Litigation and Coverage Issues subgroups. The Committee also discussed various new projects planned for 1999. These new projects include: (i) preparing a report to guaranty associations providing analysis and explanation of relevant provisions of the Uniform Receivership Law, (ii) creating a standard form of bid package to be used in the disposition of guaranty association covered obligations and (iii) addressing confidentiality and other issues arising from the increased use by NOLHGA and guaranty associations of electronic means to store and communicate information. The next meeting of the Legal Committee is scheduled for May 11 in Chicago.
Staff Contact - Bill O'SullivanNOLHGA To File Brief in Support of MO Association
Last Friday, NOLHGA's Legal Committee voted in favor of filing an amicus curiae brief on the merits in support of the Missouri Association's appeal of Quackenbush v. Missouri Life and Health Insurance Guaranty Association. The issue on appeal involves the Missouri Court of Appeals' October 6th decision finding guaranty association coverage for certain structured settlement annuities, despite Missouri's clear statutory exclusion of allocated annuities which were not "issued to and owned by an individual." This issue is of national importance to NOLHGA, and concerns the Court of Appeals' use of the liberal construction language within the Act to expand coverage beyond that which was intended by the legislature.
In addition to the forthcoming brief on the merits, NOLHGA previously filed an amicus motion and "Suggestions" in support of the Missouri Association's Application for Transfer of the case to the Missouri Supreme Court. The application for transfer was accepted on January 19, 1999. (See January 22 Weekly Wire). Briefs from the Missouri Association and NOLHGA are due in the Missouri Supreme Court on April 5, 1999.
Staff Contact -Proposed Association Tax Draws Fire
As previously reported (See Feb 12 Weekly Wire), the Clinton Administration's 1999 budget released Feb. 1, contains a proposal to amend the Internal Revenue Code to tax the investment income of section 501(c)(6) tax-exempt organizations. "Investment income" includes income that associations receive from interest, dividends, rents, capital gains and royalties. In response to the proposed plan, the American Society of Association Executives (ASAE) is urging its members to respond by contacting their congressman. At least one guaranty association has received such a notice by fax from the ASAE on this issue.
Before taking action as urged by the ASAE, members should be aware that NOLHGA's Legal Committee at its Feb. 26 meeting discussed possible actions NOLHGA and the guaranty associations might take in response the proposal. The committee's principal concern was that NOLHGA/guaranty associations attempts to influence this "legislation" not have an adverse impact on the ability of member insurers to deduct their dues or assessments to guaranty associations. The Legal Committee is reviewing the issue and will report its findings to guaranty associations upon completion.
CALENDAR/CONFERENCE CALLS
March 12 Discovery/Confidentiality Subgroup Teleconference, 3pm EST
March 16 Communications Committee Teleconference, 1pm EST