Regulators discuss the benefits of updated IRMA language for receivership

Image shows a Penn Treaty web page — Penn Treaty long-term care policy owners spent years trying to get their funds.

By John Hilton

An insurance panel reminded state regulators Wednesday that updated rules are available to help consumers get more of their funds returned after insurers enter receivership.

The Receivership Law Working Group heard a presentation from Pennsylvania Deputy Commissioner Laura Slaymaker that focused on provisions of Insurance Receivership Model Act (IRMA).

Issues of concern include continuation of coverage and over-the-cap claims made after insurers enter the receivership process. IRMA contains sections that give states more legal backing in assisting consumers in these situations, Slaymaker explained.

But a past task force study found "wide variances" among states, some of which had the updated language, some that had older language and some states that "had no provision at all," she added.

Pennsylvania officials are acutely aware of the difficulties recapturing funds for consumers, especially when regulators lack the updated tools. The failure of Penn Treaty Network America Insurance Co. precipitated a years-long process to get funds returned to more than 126,000 long-term care policyholders in all 50 states and the District of Columbia.

Penn Treaty and its subsidiary, American Network Insurance Co., were placed into rehabilitation by the Pennsylvania insurance commissioner in 2009. The court rejected liquidation petitions three years later and the companies were not placed into liquidation until March 1, 2017.

Through it all, Pennsylvania officials did not have the updated language provided by the IRMA model, said Michael J. Broadbent, lawyer with Cozen O'Connor.

"During that liquidation phase, part of what the liquidator sought to do was to set aside a portion of the assets to pay for over-the-limit or over-the-cap benefits," Broadbent recalled, "as benefits the policyholders have or would have been entitled to absent the liquidation on claims that exceeded the Guarantee Association limits.

"Pennsylvania law at the time and today does not have The IRMA provisions."

'Terminated coverage at liquidation'

State Guarantee Associations are funded by member insurance companies to help make policyholders whole if an insurer fails. All have limits of generally $250,000 to $500,000.

The Penn Treaty case went all the way to the Pennsylvania Supreme Court, Broadbent noted.

"The court was very clear that Pennsylvania law terminated coverage at liquidation and did not authorize expressly the use of the state assets to pay for these benefits," Broadbent explained. Absent "clear direction that this was permissible" or " a framework for the liquidator to bring a proposal and have it analyzed by the court, then the liquidator could not pursue a plan to distribute these assets in any circumstance."

In a key legal point, Section 801 of IRMA allows for claims that come in a period after a liquidation order to fall within the same priority class as the other policyholder-level claims, Broadbent explained.

"Every state may end up having different case law that would develop around that if they adopted these provisions," Broadbent said, "but the idea that IRMA says this is a possibility, and this is how we think you should handle it, does provide some advantage over the the existing approach in most states."

State insurance departments are dealing with a few high-profile receivership cases, notably in North Carolina, where insurers formerly owned by Greg Lindberg are in financial arrears.

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.