Asbestos IBNR Outside New Jersey Statute For Liquidation of Insolvent Insurers

Posted on December 20, 2007 by Mike Aylward

The New Jersey Supreme Court has ruled that thousands of asbestos claims and other long-tail liabilities that have been incurred but not yet reported do not qualify for inclusion in the distribution of the estate of an insolvent insurer as N.J.S.A. 17:30C-8(a)(1) provides that “no contingent claim shall share in the distribution of the assets of an insurer” except as such claims have become “absolute against the insurer.” In In The Matter of Liquidation of Integrity Ins. Co., No. A-91-06 (N.J. December 13, 2007), the court rejected the Liquidator’s argument that IBNR claims become “absolute” once their value is susceptible of being estimated. Instead, the majority declared that “because the process by which the Liquidator proposes to estimate IBNR claims of necessity entails looking outside of each claim to other similar claims in respect of their very existence, nature and extent and cost, IBNR claims fail to satisfy that most basic element of requirements in order to be “absolute”: [that each] stand on its own and not by reference to any other claim.” Two dissenting justices argues that the majority’s analysis created an unreasonable “Hobson’s choice” for the Liquidator, as it must either pay out the limited assets of the Estate now and leave future claimants without relief or delays payments indefinitely while the Estate meanwhile “hemorrhages” administrative costs.

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Guaranty Fund Act Revisions Under Consideration

Posted on December 4, 2007 by Mike Aylward

The National Conference of Insurance Legislators (NCOIL) is poised to adopt new model legislation governing the role of state guaranty funds in responding to the insolvency of property and casualty insurers. T

he proposed model legislation, which was approved by NCOIL’s property and casualty insurance committee on November 16, 2007, comes in response to complaints that most model acts, which were adopted pursuant to the 1970 National Association of Insurance Commissioners 1970 recommendation, are outdated and do not reflect the complexity and realities of today’s insurance marketplace. The NCOIL action comes at a time when the NAIC model, which was adopted in 1970 and last amended in 1996, is currently being reconsidered by an NAIC receivership and insolvency task force.


PROPOSED CHANGES
These proposals would amend the current Model Act in several significant areas, including the following:

1. Statutory Caps
At present, guaranty funds are limited to $300,000 per claim. The NAIC is considering increasing this limit to $500,000. The NCOIL draft leaves the $300,000 cap in place but would give states the option of setting a higher claim limit where appropriate.

2. Treatment of "Assumed Business"
The NCOIL model maintains existing NAIC language limiting guaranty fund obligations to policies that are written through admitted carriers. The draft NAIC proposal would extend coverage to non-admitted carrier risks that were later entered into assumption transactions with licensed carriers.

3. Net Worth Limitations
The current NAIC model caps guaranty fund participation at $25 million net worth for first party insureds and $50 million for casualty policies. The NCOIL proposal would reduce these thresholds to $10 million and $25 million respectively on the theory that high net worth policyholders are able to handle the risk of insolvencies without guaranty fund participation.

4. Claim Bar
Under existing law, the claim bar date is set by the court overseeing an insolvent insurer’s liquidation. The NCOIL proposal would establish a separate bar date of 18 months after the order of liquidation as an alternative to the liquidators bar date and whichever date is earlier would be used.

5. Claim Servicing
The NAIC and NCOIL proposals differ with respect to whether the receiver of an insolvent estate may act as the guaranty fund servicing facility, a practice that is presently prohibited by many states. The draft NAIC proposal would now allow the receiver to act as the servicing facility whereas the NCOIL model would maintain the present prohibition against this practice.

6. Coverage Litigation
At present, the guaranty fund has no express right to intervene in court proceedings. The NCOIL proposal would allow it to intervene in proceedings taking place in the court that has jurisdiction over the insolvent insurer.

7. Bad Faith Claims Against Guaranty Funds 
Finally, the NCOIL and NAIC proposals differ with respect to whether guaranty funds will continue to be protected against allegations of bad faith claims handling. The NCOIL proposal would maintain current NAIC language that protects guaranty funds against claims of bad faith or punitive damages whereas the NAIC model language would permit tort claims for misconduct that is unrelated to the fund’s obligation to pay covered claims.

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National Union Fire Ins. Co. v. Mississippi Insurance Guaranty Association

Posted on November 20, 2007 by Mike Aylward

The Fifth Circuit has asked the Mississippi Supreme Court to answer whether a medical malpractice insurer whose “other insurance” clause made it excess to PHICO must nonetheless accept coverage in light of PHICO’s insolvency or whether the State Guaranty Fund bore responsibility.   Earlier this year, the supreme court ruled that the exhaustion requirements of Miss. Code Ann. §83-23-123 did not apply to coverage available to a co-defendant, holding in Mississippi nsurance Guaranty Association v. Cole, 954 So.2d 407 (Miss. 2007) that the MIGA’s obligations were not excused by sums paid by the insurer of a joint tortfeasor.

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