On Monday, the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) released a report entitled “Factors Affecting Efforts to Limit Payments to AIG Counterparties.” The report examines certain transactions related to the rescue of AIG, including the creation of Maiden Lane III, a limited liability company formed last year to facilitate the purchase of assets from counterparties of AIG Financia

The United States District Court for the Central District of California, applying California law, has granted summary judgment in favor of an insurer because a lawsuit against the insured actuarial services firm was a claim "arising out of the insolvency" of the insured's client and therefore was barred by the policy's insolvency exclusion. Zurich Global Corp. U.K. v. Bickerstaff, Whatley, Ryan & Burkhalter, Inc., 2009 WL 2827969 (C.D. Cal. Aug. 26, 2009).

In a recent action, Granite Re filed suit against Federal Crop Ins. Corp., Risk Management Agency and Ann Frohman, in her capacity as Liquidator for the insolvent insurer, American Growers Ins., alleging that Growers owes unpaid reinsurance premiums to Granite Re. Following removal to Federal Court, the Liquidator moved to dismiss, advising that she claims no interest in the outcome of Granite Re’s litigation against FCIC/RMA and she will therefore forego any right she may have had to remain in the litigation as an interested or intervening party.

On December 2nd, the House Financial Services Committee approved the Financial Stability Improvement Act, H.R. 3996, which creates a financial risk oversight council and provides for a mechanism for winding down a systemically important non-bank financial institution facing collapse. Committee Press Release. See also Bill Summary.

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.

As we count down the days until the New Year, we are reminded of the momentous year we will leave behind us on December 31. While memorable for many things, 2009 may long be remembered as a year of record corporate insolvency. In 2009, General Motors, CIT, Chrysler, and Thornburg Mortgage filed four of the ten largest corporate bankruptcies in U.S. history. Equally notable are the number of corporate filings made in 2009.

The United States District Court for the District of Kansas, applying Kansas law, has held that a D&O policy issued to a bank was not automatically canceled or terminated when the FDIC was appointed as the bank’s receiver but that coverage under the policy ceased. Columbian Fin. Corp. v. BancInsure, Inc., 2009 WL 4508576 (D. Kan. Nov. 30, 2009). The court concluded that although coverage ceased upon the appointment of the FDIC as receiver, the insureds could report claims at any time prior to the expiration of the policy.

During the second afternoon session of the first day of the PLUS D&O Symposium, the panelists discussed the complex underwriting issues that arise when the company to be insured is insolvent, in bankruptcy, or close to bankruptcy. The panelists discussed the following topics and provided the following insights:

I. Introduction

When entering into a reinsurance agreement, a ceding company and a reinsurer may also enter into a related reinsurance trust agreement  

In response to an imminent Order of Liquidation against the Kemper Insurance Companies, we have prepared the following “frequently asked questions” guide summarizing issues related to: (i) the financial regulation of insurance companies; (ii) the liquidation and proof of claim process in Illinois; (iii) potential recovery by policyholders of the amount of “covered” workers’ compensation claims from state guaranty associations; (iv) policyholder collateral; and (v) planning a response to the Kemper liquidation.1

I. FINANCIAL REGULATION OF INSURANCE COMPANIES