Reliance Insurance Co. (PA)
Reliance Ordered into Liquidation
On Oct. 4, Reliance Insurance Co. was placed in liquidation by order of Common Pleas Court Judge James Gardner Colins. A petition for such an order had been presented to the court that morning by counsel for Pennsylvania Insurance Commissioner M. Diane Koken. Reliance had been under an order of rehabilitation since May 29 of this year.
Commissioner Koken stated that efforts to develop a plan of rehabilitation for Reliance proved unworkable for several reasons, including the effect of the Sept. 11 terrorist attacks on the ability of reinsurers to process and pay Reliance claims on a timely basis. The commissioner's official statement noted that the company's total admitted assets as of March 31, 2001, were $8.8 billion; total liabilities as of that date were $9.9 billion.
Reliance primarily wrote both direct insurance and assumed reinsurance on a variety of property and casualty risks. However, the company did write a relatively small amount of accident and health insurance in several states through its former subsidiary, United Pacific Insurance Co., which was merged into Reliance in late 2000. Antares Business Solutions, Inc., has been administering that business for Reliance. The balance of the Reliance accident and health business (except for a small amount that has been substantially run off at Reliance) was transferred to Combined Insurance Co., an AON subsidiary, late in 2000.
The court's Liquidation Order cancels in-force business 30 days after the date of the order, subject to certain provisions of the Pennsylvania Insurance Department Act. The order and related materials from the department are available at the department's Web site (www.insurance.state.pa.us).
Task Force Chair - Tad Rhodes; Staff Contact - Bankers Commercial Life (TX)Certificates of Health Benefit Coverage Mailed
Certificates of health benefit coverage have been mailed to 453 policyholders whose policies have been canceled. Certain policies covered by the Colorado, New Mexico, Oklahoma and Texas guaranty associations were canceled in August and September (initial cancellation notices were mailed in July).
Premium refunds on 295 of the canceled policies have also been made for the unearned premium portion. Funding for the premium refund amounts should be included in the 9/15-9/21 and 9/22-9/28 weekly reports mailed to affected guaranty associations by New Era.
In addition, processing for all pre-March 1, 2000, "box" claims (unprocessed claims received when UTA first took over administration of the BCL business from the Texas Department of Insurance) has been completed by New Era. Funding should appear on the weekly reports mailed to guaranty associations no later than Oct. 12. This will conclude "box" claims processing, other than occasional claims that may be filed by policyholders at later dates.
Task Force Chair - William Falck; Staff Contact - Paul PetersonCourt Issues Ruling in AMLICO Federal Priority Case Distribution
On Sept. 27, U.S. District Court Judge Douglas P. Woodlock issued a decision in Ruthhardt vs. United States, a case arising out of the American Mutual Liability Insurance Co. (AMLICO) insolvency. The case presented two key issues with respect to the application of the Federal Priority Statute, which requires that federal government claims be given priority payment status, to state insurance receivership proceedings.
The first issue was whether the Federal Priority Statute preempts the Massachusetts law governing the payment of claims in receiverships. The United States took the position that the Massachusetts law should be preempted because it preferred guaranty association claims over those of the federal government in violation of the Federal Priority Statute.
In addressing this issue, the District Court focused on whether the McCarran-Ferguson Act would protect the Massachusetts statute from federal preemption. The District Court noted that in U.S. Dept. of Treasury vs. Fabe, the Supreme Court found that a state priority statute was eligible for McCarran-Ferguson Act protection to the extent that it served to protect policyholders. The District Court went on to find that guaranty associations benefit policyholders in insolvencies by expediting the payment of claims and by providing policyholders with greater recoveries than they otherwise would receive from estate distributions. As a consequence, the court held that guaranty funds are integral to the goal of protecting policyholders. On that basis, the court rejected the federal government's position and found that the Massachusetts law preferring guaranty fund claims was saved from federal preemption under McCarran-Ferguson.
The next issue addressed by the District Court was whether the Federal Priority Statute preempts the Massachusetts law establishing a claims filing deadline for receivership proceedings. The federal government argued that such preemption applied and that as a consequence, its claims against AMLICO were not subject to any filing deadline.
In addressing this issue, the court's inquiry again focused on whether the given state law (i.e., the claims filing deadline) was instituted for the purpose of protecting policyholders and therefore eligible for McCarran-Ferguson Act protection. In its analysis, the court noted that there was a compelling argument for finding that a claims filing deadline serves to benefit policyholders in receiverships. In particular, the court noted that a late-filed federal policyholder claim could interfere with the timely and orderly distribution of funds to other policyholders.
Nevertheless, the court ultimately held that the Massachusetts filing deadline was not saved from federal preemption. In so holding, the court indicated that it was constrained to follow the prior decision of the First Circuit Court of Appeals in the case of Garcia vs. Island Program Designer, Inc. In Garcia, the First Circuit held that a state receivership claims filing deadline was not directed at or necessary for protecting policyholders and therefore was subject to federal preemption. While the District Court observed that this holding seemed to understate the disruptions to policyholders resulting from the absence of a claims filing deadline, it recognized that it was bound to follow Garcia as the controlling precedent in the First Circuit.
NOLHGA and certain property and casualty guaranty funds affected by the AMLICO case filed amicus briefs in support of the receiver's positions in this case.
Staff Contact - Sean McKennaLarry Henry Joins NOLHGA
NOLHGA is very pleased to announce that Larry Henry has been hired as manager, Insurance Services. Henry, who graduated from the University of Richmond and recently earned an MBA from the University of Florida, brings a wealth of experience with healthcare issues and project management to the NOLHGA staff.
Before earning his MBA, Henry worked at Mid Atlantic Medical Services, Inc. (MAMSI) for five years, most recently as director of operations. He will be attending the NOLHGA Annual Meeting in New Mexico later this month.
Staff Contact - Sean McKenna