In a matter of first impression under New Jersey law that potentially impacts both the reinsurance and insurance industry and policyholders of insolvent insurance companies, the New Jersey Supreme Court affirmed the appellate division's ruling that the Fourth Amended Final Dividend Plan (the "FDP") proposed by the Liquidator for Integrity Insurance Company ("Integrity") should not be approved because it unlawfully allowed incurred but not reported (“IBNR”) claims to share in the insolvent insurer's estate. See In the Matter of the Liquidation of Integrity Ins.

The United States District Court for the Southern District of Texas, applying federal law, has reversed a bankruptcy court's ruling that the proceeds of an E&O liability policy were property of a bankruptcy estate. In re Burr Wolff, LP, 2007 WL 2964835 (S.D. Tex. Oct. 10, 2007). The court held instead that the issue was not ripe for adjudication because a declaratory judgment action concerning the insurer's obligations under the policy was pending, and thus "no proceeds" were currently available.

Executive Life Insurance Company of New York (ELNY) was placed into rehabilitation in 1991 after affiliated companies became insolvent and concerns about its future solvency arose. The rehabilitation plan adopted in 1992 involved the transfer of much of ELNY's business to another carrier; however, ELNY in rehabilitation retained substantial assets and continued payment on certain annuities, with the bulk of the payout going to structured settlement annuitants that had received long-term and/or lifetime annuities as settlements in personal injury lawsuits.

In an important recent decision of the United States Court of Appeals for the Second Circuit, testing the outer reaches of a bankruptcy court’s jurisdiction, In re Johns Manville Corp., 06-2099 (2d Cir. Feb. 15, 2008), the court considered whether claims that are not derivative of a debtor’s liability, but rather seek to recover directly from an insurer for its own alleged misconduct, can be enjoined by the “channeling” mechanism developed by the bankruptcy court.

The United States Court of Appeals for the Second Circuit has ruled that the Johns-Manville bankruptcy court did not have jurisdiction to enjoin direct action claims asserted against Travelers entities that are predicted on an independent duty owed by Travelers, that do not claim against the res of the Manville estate, and that seek damages unrelated to and in excess of Manville's insurance proceeds. Johns-Manville Corp. v. Chubb Indemnity Ins. Co., --- F.3d ---, 2008 WL 399010 (2d Cir. Feb. 15, 2008).

Bankruptcy Judge Judith Fitzgerald ruled last week that a debtor's insurance policies are assets of the estate and, therefore, can be properly transferred to a § 524(g) trust notwithstanding any applicable anti-assignment clauses. In re Federal-Mogul Global Inc., 01-10578 (Bankr. D. Del. March 19, 2008).

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.

The United States District Court for the Central District of California has reversed a bankruptcy court ruling allowing two law firms—Snyder Miller & Orton LLP (SMO) and Morgan Lewis & Bockius LLP (MLB)—to serve as "special insurance counsel" to address insurance and insurance-coverage-litigation-related matters under the narrow special purpose standards of § 327(e). In re Thorpe Insulation Co., No. CV08-00246-DSF (C.D. Cal. Apr. 22, 2008). Citing In re Congoleum Corp., 426 F.3d 675 (3d Cir.

The United States Bankruptcy Court for the Southern District of New York has granted another preliminary injunction ordering an excess directors and officers liability insurer to advance defense costs, despite the fact that the insurer had denied coverage on the basis of a prior knowledge exclusion and three of the insured entity's principals have pled guilty to various offenses, including violations of the securities laws. Murphy v. Allied World Assurance Co. (U.S.), Inc. (In re Refco, Inc.), No. 08-01133 (Bankr. S.D.N.Y. Apr. 21, 2008).

The New Hampshire Supreme Court will hear oral argument on April 30, 2008, in In the matter of the Liquidation of The Home Ins. Co., No. 2007-0794, N.H.), to consider whether the Superior Court erred in ruling that the a setoff claimed by Century Indemnity Company (“CIC”) lacked the mutuality necessary to trigger setoff under the New Hampshire Insurers Rehabilitation and Liquidation Act (the “Liquidation Act”).