This blog series has been following the continuing flow of large security breaches of Protected Health Information (“PHI”) and how affected providers and insurers have been responding to their discovery. The New York City Health and Hospitals Corporation’s North Bronx Healthcare Network (“HHC”) has recently become perhaps the largest marcher in the parade of PHI security breaches with a reported 1,700,000 persons affected.

The United States District Court for the Northern District of Illinois, applying Illinois law, has ruled that an insolvency exclusion barred coverage for claims arising out of an insurance broker’s placement of coverage with an insolvent insurance association. American Automobile Insurance Co. v. B.D. McClure & Associates, Ltd., 2011 WL 211204 (N.D. Ill. Jan. 21, 2011).

Following a $9 million judgment in its favor, Granite Re was further awarded pre- and post-judgment interest on that judgment. Granite Re filed a proof of claim in Acceptance Insurance’s bankruptcy action for the amount of $10.9 million, the balance of the premium due under a reinsurance contract plus interest. Acceptance disputed the claim, arguing it no longer needed reinsurance, and filed a separate adversary proceeding against Granite Re alleging unjust enrichment. The Eighth Circuit’s Bankruptcy Appellate Panel reversed the bankruptcy court’s ruling in favor of Acceptance.

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.

On March 16, 2011, plaintiffs in ABN Amro Bank, et al. v. MBIA Inc., et al. filed their opening brief in the New York Court of Appeals. Plaintiffs are appealing the 3-to-2 decision of an intermediate appellate court dismissing their suit challenging the "fraudulent restructuring" of monoline insurer MBIA. The case, brought by a group of banks that are beneficiaries of MBIA's structured finance-related policies, claims that MBIA transferred $5 billion in assets from MBIA Insurance Corporation (a failing subsidiary) to MBIA Illinois (a stronger subsidiary).

The short answer to the title question is “no.” However, under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank” or the “Act”), the Federal Deposit Insurance Corporation (“FDIC”) has limited “back-up” authority to place into liquidation an insurance company that (i) meets certain criteria as respects the nature of its business and (ii) is essentially “too big to fail.” This liquidation proceeding would, however, still be under the relevant state insurance liquidation laws.1  

On March 15, 2011, the Federal Deposit Insurance Corporation (“FDIC”) issued a notice of proposed rulemaking (“NPR”) to implement certain orderly liquidation authority (“OLA”) provisions of Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”).

The Commonwealth Court of Pennsylvania, which is overseeing the liquidation of the insurer in the coverage dispute, entered an order approving the insurer’s denial of coverage under an excess policy for a $20 million settlement that two individual insureds paid into a Federal Trade Commission (FTC) redress fund. The court adopted the recommendation of the referee appointed to hear the coverage dispute, who applied California law and concluded that the insurer was entitled to summary judgment following briefing and oral argument. Wiley Rein represented the insurer before the referee.

The United States Court of Appeals for the Ninth Circuit has held, under California law, that an insurer had no duty to defend an insured actuarial services firm in litigation alleging that the insured’s reserve reviews and rate level recommendations contributed to the insolvency of a medical malpractice self-insurance fund. Zurich Specialties London Limited v. Bickerstaff, Whatley, Ryan & Burkhalter, Inc., 2011 WL 1118463 (9th Cir. Mar. 28, 2011).

Reorganization or debtor-in-possession (“DIP”) financing has become an increasing source of litigation.