LTCi Liquidation Decision Could Undermine The Insurance Industry, ACLI Says

A long-term care insurance company liquidation case could undermine the confidence in the entire insurance industry, according to the American Council of Life Insurers.

Two coalitions of health insurers are asking the Pennsylvania Supreme Court to limit policyholder claims against Penn Treaty and American Network to 30 days after the date of liquidation.

Allowing that limit would threaten the integrity of every life insurance and annuity policy, the ACLI said in a letter to state regulators.

“There would be nothing to prevent a future court, or state guaranty association(s) for that matter, from applying the decision not just to long-term care insurance policies, but to all types of life and health insurance policies and annuity contracts,” wrote Wayne Mehlman, ACLI senior counsel for insurance regulation, in a letter to the National Association of Insurance Commissioners.

Penn Treaty and American Network have been in court-supervised rehabilitation since 2009 due to a projected inability to meet future obligations on long-term care policies. On March 1, 2017, the companies were placed into liquidation, which led to the current issue before the court.

The health insurer coalitions are asking the court to apply a 2014 Pennsylvania Supreme Court decision -- Warrantech vs. Reliance Insurance Co., an insolvent property and casualty insurer -- in two ways, according to Mehlman.

• Denying policy claims for benefits that have accrued more than 30 days after the liquidation date, except for claims that are covered by the state’s life and health insurance guaranty association.
• Preventing the assets of the insolvent estates from being used to pay any benefit claims that have accrued more than 30 days after the liquidation date and exceed the applicable guaranty association coverage limits (“uncovered benefits”).

An NAIC task force is expected to discuss the issue during its meeting Friday in San Francisco. ACLI referred the matter to the NAIC Receivership and Insolvency Task Force via Mehlman’s letter.

LTCi Guaranty Terms Revised

The NAIC has already adopted one model law change out of the Penn Treaty insolvency.
In December 2017, the NAIC adopted revisions to its Life and Health Insurance Guaranty Association Model Act (520) to “address issues and concerns with guaranty fund coverage and assessments for any future long-term care insurance insolvencies.”

The changes broaden the assessment base for LTCi insolvencies to include both life and health insurers and splits assessments between both industries. Previously, the health industry was responsible for LTCi insolvency assessments.

So far, at least 12 states have adopted the 520 model law changes.

A coalition of health insurers helped bring these issues to the NAIC’s attention and assisted with the solution, said Chris Peterson, a principal at Arbor Strategies, a consulting firm specializing in health care and insurance regulation issues.

The coalitions of major health insurers want the NAIC to stay out of the current Penn Treaty litigation.

“The specific matters related to that litigation are rightfully before the Pennsylvania courts for determination,” Peterson wrote in a Sept. 28 letter. “It is premature for NAIC engagement on the specific issues surrounding this litigation and, in our view, the NAIC’s involvement in this matter encroaches on state authority to administer estates in a manner that best meets the needs of impacted citizens.”

The Receivership and Insolvency Task Force discussed the Penn Treaty issues during an Oct. 1 conference call.

The Pennsylvania version of the Insurer Receivership Model Act does not include the section that allows continuation of coverage beyond 30 days until a date proposed by the liquidator and approved by the receivership court, said Patrick Cantilo during the call.

Cantilo, of Cantilo & Bennett, an Austin, Texas law firm, served as special deputy rehabilitator on the Penn Treaty/American Network case from 2012 to 2017.

In a letter to the task force, Cantilo ripped the health care coalition.

“What is really going on here is that the Coalition on whose behalf Mr. Peterson writes have seized upon an unfortunate lack of clarity in a seldom-used provision of Pennsylvania law to sponsor a denial of policyholder protection unprecedented in the annals of U.S. insurance regulation,” Cantilo wrote.

Future options the task force could consider may include guidance to the states or a request for the NAIC to submit an amicus brief, members discussed on the call.

Like many insurers, Penn Treaty and its sister company, American Network, underpriced LTCi policies and ran into significant financial issues. Policyholders are due about $1.5 billion in benefits, Cantilo estimated.

The court has not yet ruled on the case.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.