Concerned about the use of separate accounts to fund products with general account guarantees, the NAIC continues to examine these products and to consider how these products and the underlying assets should be regulated and treated for insolvency purposes.

Leading the Past Week

Asbestos settlement trusts are a major source of payment of asbestos claims in the United States, with over fifty such trusts instituted as of March, 2011.¹ While insurance recoveries are a principal source of funding for these trusts, courts generally have not allowed insurers to challenge chapter 11 plans where they are found to be “insurance neutral.” A plan is insurance neutral where the plan does not increase an insurer’s pre-petition liabilities or impair an insurer’s contractual rights under its insurance policies.

On April 16, 2012, the Supreme Court of the State of New York, Nassau County, entered an Order of Liquidation and Approval of the ELNY Restructuring Agreement (Order) and accompanying memorandum decision. The Order was entered over the objections of a number of ELNY payees, and followed an 11 day hearing that took place in March 2012.

On April 30th, the FDIC issued a final rule that treats a mutual insurance holding company as an insurance company for purposes of Section 203(e) of the Dodd-Frank Act. The new rule clarifies that the liquidation and rehabilitation of a covered financial company that is a mutual insurance holding company will be conducted in the same manner as an insurance company.

The United States Bankruptcy Court for the Southern District of New York has lifted the automatic stay in bankruptcy to permit D&O and E&O insurers to advance or reimburse insured directors,’ officers’ and employees’ reasonable defense costs incurred in underlying litigation arising out of the insured company’s collapse.  In re MF Global Holdings Ltd., et al., No. 11-15059 (MG) (Bankr. S.D.N.Y. Apr. 10, 2012)

InYessenow v. Executive Risk Indemnity, Inc., 2011 IL App 102920, 953 N.E.2d. 433 (1st Dist.

On March 20, the Federal Deposit Insurance Corporation (FDIC) proposed a rule (Proposed Rule), with request for comments, that implements section 210(c)(16) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act or the Act) , which permits the FDIC, as receiver for a financial company whose failure would pose a significant risk to the financial stability of the United States (a covered financial company), to enforce contracts of subsidiaries or affiliates of the covered financial company despite contract clauses that purport to terminate, accelerate, or provide

The United States Bankruptcy Court for the Western District of Louisiana has held that an insured versus insured exclusion does not apply to preclude coverage for claims brought by a duly appointed bankruptcy trustee against an insolvent corporation’s directors and officers.  Central Louisiana Grain Cooperative v. Vanderlick, 2012 WL 293173 (Bankr. W.D. La. Jan. 31, 2012).

A court affirmed the denial of W.R. Grace & Co.’s asbestos insurance claims against the liquidation estate of Grace’s insolvent excess-of-loss insurer, on the ground that Grace failed to submit timely “absolute” claims under New Jersey’s version of the Uniform Insurers Liquidation Act. Grace, which has been undergoing bankruptcy restructuring, had established a plan with a creditor’s committee to create a trust to pay asbestos claims.