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Reorganization and Liquidation

REINSURER’S CLAIMS DISMISSED FOR FAILURE TO COMPLY WITH LIQUIDATION ORDER

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This action was brought by the Statutory Liquidator of two insolvent Pennsylvania insurers (Legion and Villanova) against their reinsurer, Stateco Insurance Company. Plaintiff sought relief for an alleged breach of contract arising out of a Management Agreement between the insurers and Stateco. Stateco asserted several counterclaims.

Plaintiff moved to dismiss Stateco’s counterclaims on the basis that Stateco did not comply with an Order of Liquidation, pursuant to which anyone asserting claims against Legion was required to file a proof of claim on or before June 30, 2005. Defendants argued that their claims could not be barred by the Liquidation Order in light of Ninth Circuit precedent (Hawthorne Savings Bank v. Reliance Insurance Co.), as well as lack of personal jurisdiction, among other reasons.

In July, a California District Court granted plaintiff’s motion to dismiss defendant’s counterclaims. The court distinguished Hawthorne on the basis that the claim in Hawthorne was asserted by a policyholder against its insurer which had no connection to the insolvency proceedings. In contrast, the Court held the instant case was “inextricably intertwined with the liquidation proceedings, and Stateco’s counterclaims seek to interfere with those proceedings.” Additionally, the Court held that it did have personal jurisdiction over the defendant as a result of its long-term agency relationship with a Pennsylvania insurer in addition to the choice of law clause contained in the Management Agreement. The court summarily dismissed Defendant’s remaining arguments relating to mutuality and recoupment. Koken v. Stateco Inc., Case No. 05-03007 (N.D. Cal. July 25, 2007).

Court Approves Settlement of Coverage Dispute Involving Asbestos Liabilities and UK Scheme of Arrangement

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A US Bankruptcy Court has approved a settlement with a London market insurer that includes that insurer in an earlier approved settlement with insurers providing a bankrupt copper company with coverage for asbestos-related claims. The London market insurer is itself a party to a scheme of arrangement being administered in London. This opinion is an interesting intersection of the UK scheme of arrangement process and US bankruptcy laws. The motion seeking approval of the settlement contains details of the settlement and attaches copies of pertinent documents. In re ASARCO LLC, Case No. 05-21207 (US Bank. Ct. S.D. Tex. Mar. 23, 2007).

English Court Rules on Request for Transfer of Assets in International Insolvency Case

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The English Court of Appeal dismissed an appeal by the Australian liquidators of HIH Casualty and General Insurance Limited (“HIH”). The question before the court was whether it had jurisdiction to entertain a request under the Insolvency Act for directions to the liquidators in England to transfer assets collected by them to the liquidators in an Australian liquidation. The court considered whether such a transfer would interfere with the statutory scheme imposed on those assets by the Insolvency Act and whether or not the court should exercise its discretion in favor of such a transfer. The Court found that if the companies were in liquidation in England, the court would have jurisdiction to entertain a request under section 426 of the Insolvency Act for directions to the liquidators in England to transfer the assets collected by them to the liquidators in the principal liquidation, even though the result would interfere with the statutory scheme imposed on those assets by the Insolvency Act.

The Court held that if section 426 could authorize a transfer then the only question would be whether the court should exercise its discretion to do so. In exercising its discretion, the court had to consider the prejudice to the interests of some creditors of such a transfer. In this case, the Court of Appeal held that it would not direct a transfer of the English assets by the English provisional liquidators to the Australian liquidators because to do so would prejudice the interests of many of the creditors. Accordingly, the appeal was dismissed. HIH Casualty & General Insurance Ltd & Ors v. McMahon, [2006] EWCA Civ 732 (June 9, 2006).

Survey on US run-off operations

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PriceWaterhouse Coopers has published an interesting report on a survey that it conducted relating to US run-off operations. The report covers various aspects of run-off operations and strategies. Especially combined with the recent Lloyd’s report on capitalization and operation of Lloyd’s run-off syndicates, which was the subject of a post on this blog on May 28, this makes interesting reading.