On March 16, 2011, a Rhode Island Superior Court heard arguments on whether Rhode Island's solvent restructuring statute violates the Contracts Clause of the U.S. Constitution. The case stems from a global commutation plan developed pursuant to this statute by GTE Reinsurance Company Limited in order to settle all of its obligations under various property and casualty risks reinsured by GTE Re decades ago. Critics contend that the Rhode Island law enables policies and contracts to be modified without policyholder consent in violation of the U.S. Constitution.
An article by the National Underwriter Company discusses a recent Moody’s report that asbestos claims are again on the rise after years of declining or flat claims.1 This has led several insurers to increase their asbestos reserves and Moody’s views this trend as a warning flag for the property and casualty insurance industry as a whole.
For some years, companies in the United Kingdom have utilized a statutory process called solvent schemes of arrangement. These schemes amount to what in the United States is called a “cram down” voluntary reorganization of financially distressed, but solvent, debtors. They impose upon creditors reductions in the amount owed to them outside the U.S. Bankruptcy Code. Rhode Island adopted a similar statutory scheme, which became effective in 2004.
On May 24, 2007, optional federal charter (OFC) legislation was reintroduced into the Senate as the National Insurance Act of 2007 (S. 40) (NIA), co-sponsored by John Sununu (R-NH) and Tim Johnson (D-SD). A similar bill is expected to be reintroduced into the House by Ed Royce (R-CA) in the coming weeks. The bill closely resembles the original legislation filed last year by the same co-sponsors. The major changes in the new bill are provisions concerning surplus lines/nonadmitted insurers and the insolvency/guaranty funds.
Recently, a New York state court gave the New York Liquidation Bureau ("NYLB") permission to notify more than 300,000 creditors of Union Indemnity Insurance Company (“Union Indemnity”) that it plans to make the first distribution from the insolvent property casualty insurer's estate. See In Re Union Indemnity Ins. Co., No. 41292/85 (N.Y. Sup. Ct., Oct. 10, 2007).
A recent report by Standard & Poor's ("S&P") noted that the number of U.S. insurers placed under regulatory supervision in 2007 was the lowest in a decade. The report attributes a decrease in insolvencies among property casualty insurers to, among other things, a mild hurricane season combined with better underwriting and an improved premium rate environment. S&P forecasted a stable outlook in the P&C sector for 2008, though noting that it expects net premiums to decline modestly after an extremely profitable 2007.
*As seen on Bankruptcy Law360.
This morning, March 2, 2009, American International Group, Inc. ("AIG") announced a loss of $61.7 billion for the fourth quarter of 2008, a total net loss for 2008 of $99.29 billion, and a major restructuring of its operations, including a new federal infusion of $30 billion, forgiveness of certain debts, and relaxation of prior bailout terms. For comparison purposes, all insured losses for all insurance companies (not just AIG) relating to Hurricane Katrina are estimated at slightly more than $40 billion.
The Ninth Circuit Court of Appeals has held that an insured vs. insured exclusion bars coverage for a suit by a debtor-in-possession against former directors and officers of the company. Biltmore Assocs. v. Twin City Fire Ins. Co., No. 06-16417, 2009 WL 1976071 (9th Cir. July 10, 2009). The court rejected the argument that the debtor-in-possession was a different legal entity from the pre-bankruptcy company insured under the policy.
The Florida Office of Insurance Regulation has placed Magnolia Insurance Company under administrative supervision, finding that the company was in an unsound condition. Under terms of a December 14, 2009 consent order, the company will not be able to issue or renew any policies without permission from the regulator. Magnolia’s President, H. James Irl, has resigned and is prohibited from exercising any managerial control. The consent order also required the company to notify policyholders and agents that if they choose to obtain coverage from Magnolia, they do so at their own risk.