A Task Force appointed by the Connecticut Insurance Commissioner has issued a report proposing the adoption of statutes and regulations to oversee the run-off of solvent companies. Such oversight would be exercised by the Department of Insurance. The report notes the experience of the UK in this area and moves to provide a similar mechanism in several states in the US.
Reorganization and Liquidation
NAIC Task Force report on reinsurance collateral adopted
Although there are not yet any minutes or summary posted on the NAIC's Internet site, news reports indicate that the NAIC's Reinsurance Task Force, by a vote of 15-5, has adopted the latest draft proposal to change the collateral rules for reinsurance. Additional information will be posted here as it becomes available. Read the news story. The proposal should now go to the NAIC's Financial Condition Committee.
Insolvent insurer recoups claims payments made to insureds and retains reinsurance recovery for same claims
The Utah Supreme Court has ruled on issues relating to whether payments received under various insurance and reinsurance agreements constituted voidable preferences under the Utah Insurers Rehabilitation and Liquidation Act, holding that the payments constituted voidable preferences. Wilcox v. Anchor Wate Co., Case No. 20050324 (Utah Nov. 3, 2006). An insurer had paid claims to its insured and received reimbursement from its reinsurers. The insurer was declared insolvent, and successfully recouped the claims payments it had made to its insured as a voidable preference, even though it had received reinsurance payments. The Court held that the insured had no right to the reinsurance proceeds, and that under the liquidation statute, the insolvent insurer could keep the reinsurance payments and recoup the claim payments it had made to its insured.
RICO claims against Gen Re dismissed in ROA case
A US District Court has dismissed RICO claims asserted in a Second Amended Complaint against Gen Re (with leave to amend) arising out of the insolvency of Reciprocal of America, and Gen Re's provision of “accommodation reinsurance” that involved an undisclosed side agreement. The Court found a failure to appropriately plead proximate cause and reliance. State law claims were dismissed without prejudice since the only federal law claims were dismissed. In re Reciprocal of America Sales Practices Lit., MDL 1551 (USDC W. D. Ten. Sept. 29, 2006).
State court rules that Liquidation Act does not force payment of IBNR claims or avoid arbitration agreements
A New Jersey Appellate Court has agreed with arguments made by the Reinsurance Association of America, holding that a court could not, under the authority of New Jersey's Insurer Liquidation Act, adopt a plan that forced reinsurers to pay claims based upon IBNR estimates, and could not abrogate arbitration provisions contained in reinsurance agreements to force that disputes be litigated in the liquidation court. In re Liquidation of Integrity Insurance Company, Case No., C-7022-86, 2006 WL 2795343 (N.J. Super. A.D. Oct. 2, 2006).