RAA BACKS PENNSYLVANIA OVER LIQUIDATIONS

The Reinsurance Association of America (RAA) has backed the Insurance Commissioner of Pennsylvania’s moves to have Legion Insurance and related company Villanova Insurance placed into liquidation in the face of strong opposition from large policyholders of the two insurers. Entering an amicus curiae (friend of the court) brief in favour of commissioner Diane Koken’s action, the RAA said that certain policyholders were asking the court to give them preferential treatment, including direct access to reinsurance “in order to bypass other policyholders in the receivership process”. If they are ultimately successful, they will have disadvantaged other policyholders should Legion be found to be insolvent, as many fear, the RAA brief says. “While it is inequitable and statutorily prohibited to allow creditors of one class to benefit over creditors in that class, it is particularly repugnant to allow such beneficial treatment to large corporate policyholders that have repeatedly advised the court throughout their briefs that they are sophisticated entities that had both the resources and the leverage to have adequately protected themselves in the negotiation and placement of the insurance and reinsurance transactions at issue”. Certain policyholders have argued that the reinsurance supporting Legion and Villanova could well be enough to pay claims but it cannot be accessed if the primary insurers have to pay direct claims first before recovering from reinsurers. Legion and Villanova are both based in Pennsylvania but owned by Bermudian group Mutual Risk Management (MRM) which filed a scheme of arrangement in Bermuda in December last year. The two insurers wrote mainly commercial lines, motor liability and workers’ compensation business, with a particular focus on the Californian market. Ms Koken successfully petitioned for the two to be placed in rehabilitation as of April last year, and has since been trying to obtain court approval to place the companies in liquidation in the face of persistent refusals by Pennsylvania courts. In April, California’s insurance commissioner John Garamendi successfully received an order of liquidation for the Californian business of the two companies and criticised the delay by the Pennsylvanian courts in issuing a liquidation order in that state for causing financial and emotional problems for Californian policyholders. Following Mr Garamendi’s success, all covered claims in California will be paid by the California Insurance Guarantee Association.