Reorganization and Liquidation

Excalibur had been in run-off status since 2003, and under regulatory supervision since at least 2013. A Pennsylvania court has now placed Excalibur into liquidation based on three grounds: (1) insolvency – Excalibur’s admitted assets did not exceed its liabilities plus the greater of its capital and required surplus or capital stock; (2) Excalibur’s total adjusted capital was less than its mandatory control level risk-based capital; and (3) Excalibur’s board of directors and sole shareholder consented to liquidation. Under Pennsylvania law, the Insurance Commissioner was appointed Statutory Liquidator vested with certain powers and title to Excalibur’s property. Additionally, various procedures related to winding down the company and notifying interested parties were put in place. A separate order was also entered staying all litigation and legal claims against Excalibur and directing all relief sought against the company to be pursued by filing a proof of claim in the liquidation proceedings. Miller v. Excalibur Reinsurance Corp., Case No. 1 ERC 2016 (Pa. Comm. Ct. July 18, 2016) (Liquidation Order & Order Granting Stay).

This post written by Michael Wolgin.
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In mid-June, a Texas court adjudicated a dispute between an insurance receiver and an insurer that claimed that it was owed more than twice as much from the insolvent insurer due to a misclassification of its claim. The dispute arose out of the receivership of the Vesta Fire Insurance Corporation and Global Reinsurance Corporation. Global Re submitted a proof of claim in an amount exceeding $6 million, and the special receiver classified the claim in such a way that Global Re was entitled to about $ 1.5 million. Global Re objected, indicating that it believed its claim should have been allowed in an amount exceeding $3.5 million. The receiver applied for final disposition of Global Re’s disputed claim, and the Texas state court approved the final disposition in the class and amount originally determined by the receiver. Texas v. Vesta Fire Insurance Corp., No. D-1-GN-06-002366 (Tex. Dist. Ct. June 15, 2016).

This post written by Zach Ludens.

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Freestone Insurance Company is a Delaware-domiciled insurer that has been placed in liquidation. U.S. Bank National Association served as the trustee under a reinsurance trust agreement (the “Trust Agreement”) between Freestone and Companion Property and Casualty Company (“Companion”).  The trust agreement secured a reinsurance arrangement that allowed Freestone to do business through Companion in jurisdictions where Freestone was not admitted to sell insurance.  Under the arrangement, Companion wrote policies as a “fronting insurer” on Freestone’s behalf, and Freestone reinsured the risks under those policies.  The trust agreement required Freestone to place collateral into a trust account for Companion’s benefit, in order to secure Freestone’s reinsurance obligations.  In its capacity as trustee, U.S. Bank had various duties related to the collateral.  After Freestone failed to make certain payments under the reinsurance arrangement, Companion sought to draw down on the collateral, the value of which was insufficient to cover the claims being made under the reinsured policies.  As a result, Companion sued U.S. Bank in federal court in South Carolina for damages, alleging that U.S. Bank breached its obligations as trustee by permitting Freestone to place poor quality collateral in the trust account (the “South Carolina Action”).

As part of Freestone’s liquidation claims process, which is governed by Delaware’s Uniform Insurers Liquidation Act (the “Uniform Act”), U.S. Bank filed certain claims notices against Freestone that relate to the South Carolina Action. U.S. Bank also sought to assert third-party claims against Freestone in the South Carolina Action for contribution and indemnification, and thus filed a motion with the Delaware Chancery Court seeking to lift the anti-suit injunction set forth in the Freestone liquidation Order that barred third-party claims against Freestone other than through the liquidation claims process.  The Chancery Court denied U.S. Bank’s motion, finding that granting such relief would contravene the Uniform Act, interfere with the liquidation claims process and impose unnecessary and unwarranted costs on Freestone and the Delaware Insurance Commissioner as Freestone’s statutory receiver. In the Matter of the Liquidation of Freestone Insurance Company, Case No. 9574-VCL (Del. Chancery Ct. July 7, 2016).

This post written by Rob DiUbaldo.
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In various posts, the latest of which was September 2, 2015, Reinsurance Focus has covered developments in the liquidation of The Home Insurance Company. Recently, the liquidation court entered orders approving three commutations between Home and its counterparties to certain reinsurance contracts concerning liabilities arising under those agreements – one involving Westport Insurance Corporation, the second for R&Q Reinsurance Company, and the third involving CX Reinsurance Company Limited. Here are the motions to approve the commutation agreements for Westport Insurance Corporation, R&Q Reinsurance Company, and CX Reinsurance Company Limited.

This post written by Rob DiUbaldo.

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A Texas court presiding over the liquidation of Santa Fe Auto Insurance Company approved an application by the Special Deputy Receiver for the liquidating company (“SDR”) to enter into a reinsurance settlement with three reinsurers. The agreement provides that the reinsurers will pay over $11 million due under certain quota share reinsurance agreements. The order noted that no objections to the application were filed. Texas v. Santa Fe Auto Ins. Co., Case No. D-1-GV-13-000204 (Tex. Dist. Ct. Dec. 7, 2015) (application) and (Tex. Dist. Ct. Dec. 21, 2015) (order).

This post written by Joshua S. Wirth, a law clerk at Carlton Fields Jorden Burt in Washington, DC.

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