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You are here: Home / Archives for Reinsurance Regulation / Reorganization and Liquidation

Reorganization and Liquidation

Court Reverses Dismissal of Insurer’s Complaint Against Parent Corporation For Misappropriation of Net Operating Loss

March 29, 2007 by Carlton Fields

The California Court of Appeal reversed a trial court’s judgment dismissing a subsidiary insurer’s complaint against its parent company. The subsidiary insurer, Fremont Indemnity, (by and through the Insurance Commissioner as its liquidator) sued Fremont General, the parent company, alleging the defendants misappropriated net operating losses of its predecessor in interest and misappropriated other assets of its former subsidiary. Fremont Indemnity also asserted a claim for conversion of the net operating losses, in addition to alleging improper distributions in violation of the California Insurance Code.

The defendants demurred to the complaint. In support of the demurrer, the defendants sought judicial notice of a letter that provided for the Insurance Commissioner to supervise and provide regulatory oversight of Fremont Indemnity. Defendants alleged that the letter allowed Fremont General to use the net operating losses in the manner alleged. They also argued the conversion claim failed because the unauthorized taking of an intangible property interest in not an actionable conversion.

The appellate court held that it was improper for the trial court to take judicial notice of the letter. Specifically, the court stated “[a]lthough the existence of a document may be judicially noticeable, the truth of statements contained in the document and its proper interpretation are not subject to judicial notice if those matters are reasonably disputable.” Additionally, the court concluded conversion is not restricted to tangible property and held a net operating loss and the owner’s alleged right of ownership and exclusive possession to this loss are sufficiently definite to support a conversion claim. Poizner v. Fremont General Corporation, No. BC320766 (Ct. App. Cal., Feb. 28, 2007).

Filed Under: Reorganization and Liquidation

Surplus lines/reinsurance bill reintroduced in Congress

March 7, 2007 by Carlton Fields

Last fall, the Nonadmitted and Reinsurance Reform Act passed the house 417-0, but was not considered by the Senate due to its late passage in the House. A substantially similar bill has been introduced in the House, H.R. 1065. The bill subjects nonadmitted insurers to the premium tax laws of the policyholder's home state, and makes reinsurers subject to the solvency laws of their state of domicile under most circumstances. Due to an amendment to the definition of “qualified risk manager,” the new bill has the support of the Risk & Insurance Management Society, which did not support the bill last year.

Filed Under: Reinsurance Regulation, Reorganization and Liquidation, Week's Best Posts

Court partially dismisses claims arising out of reserve dispute

January 8, 2007 by Carlton Fields

Converium Holding, a Swiss reinsurance company, issued an IPO in December 2001. Converium's North American unit collapsed in September 2004 after four increases in reserves in a single year. Class action lawsuits followed, alleging that management had grossly misrepresented necessary reserves and failed to disclose reserve disputes with the company's outside auditor. The District Court dismissed claims against the IPO's underwriter and broker and claims against the company and individual defendants relating to the IPO, denying dismissal of certain other claims. In re Converium Holding AG Securities Litigation, Case No. 04-7897 (USDC S.D.N.Y. Dec. 28, 2006). This opinion illustrates the strategic problem of finding a solvent deep pocket in this type of situation, and discusses the “storm warning” doctrine, pursuant to which the Court found that the frequent increases to reserves, in increasing amounts, in a short period of time, put investors on notice of problems despite comfort statements by management.

Filed Under: Reorganization and Liquidation, Reserves, Week's Best Posts

Court upholds settlement of claims affecting reinsurance in liquidation of The Home

December 20, 2006 by Carlton Fields

The New Hampshire Supreme Court has upheld a settlement of disputes and claims involving insureds and reinsureds of The Home Insurance Company, which was placed in liquidation by the New Hampshire Commissioner of Insurance. Some of The Home's reinsurers opposed the settlement. The Court upheld the settlement as within the authority of the liquidator and the Court, and fair and reasonable. This process is interesting in part because the settlement had to be approved by creditors of The Home, by a Court in the UK and by the UK's insurance regulatory body, the Financial Services Agency. In the Matter of the Liquidation of The Home Ins. Co., Case No. 2005-740 (N.H. Dec. 5, 2006).

Filed Under: Reorganization and Liquidation, Week's Best Posts

Mississippi Supreme Court upholds assumption reinsurance agreement

December 14, 2006 by Carlton Fields

The Mississippi Supreme Court has affirmed the grant of summary judgment in favor of two insurance companies that entered into assumption reinsurance agreements to transfer workers' compensation risks to Legion Insurance. After Legion was placed in liquidation, the Mississippi Insurance Guaranty Association unsuccessfully attempted to hold the companies responsible for losses. The Court held that the agreements constituted a novation, removing the companies from the risk. Mississippi Ins. Guaranty Ass'n. v. MS Casualty Ins. Co., Case No. 2005-01158 (Oct. 26, 2006).

Filed Under: Reorganization and Liquidation

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