As Appeared in Law 360, Pa. Reinsurance Ruling Sets Precedent For Insolvency Cases By Andrew Rothseid, RunOff Re.Solve LLC and Joseph Donley, Clark Hill PLC
Pa. Reinsurance Ruling Sets Precedent For Insolvency Cases
What the rulings say
In an
* Confirmed an arbitration award in favor of the Pennsylvania Insurance Commissioner, as Liquidator of
* Denied General Re's Motion to Seal the Award, notwithstanding the confidentiality order in the underlying arbitration.
Why the rulings break new ground
The Court's Memorandum and Order demonstrates:
* The liquidators' latitude to accelerate payment to the creditors, the state guaranty associations, in order to manage insolvent insurance companies efficiently;
* Reinsurers' obligations to indemnify liquidators for the sanctioned accelerated payments; and
* The public's right of access to decisions from private arbitrations, which directly affect the public's interests.
In 2016, the Liquidator for Westmoreland Casualty, an insolvent
* the history of the Westmoreland insolvency;
* the steps taken to agree determined values with the Guaranty Associations for Class A (administrative expense) and Class B (loss and loss adjustment expense) amounts; and
* the power and authority provided to the Liquidator by the Insurance Department Act of 1921 to manage the affairs of an insurer in liquidation.
The Commonwealth Court granted the Application by Memorandum and Order dated
Challenge overruled
In its
Westmoreland contended that
Gen Re opposed Westmoreland's motion claiming that, under the treaty, the compromise of open claims with the guaranty associations was not a settlement of claims or losses paid by Westmoreland under the treaty. As described by the panel, Gen Re contended that the treaty required that the guaranty associations actually had to pay the underlying workers' compensation claims to the insureds before the payment amounts were properly due and owing from the reinsurer.
The panel disagreed with Gen Re's position ruling that "[p]ayment to the insured is not required to trigger the reinsurer's obligation." Citing the Insolvency clause of the treaty, the panel ruled that the
Following receipt of the panel's award, and prior to satisfaction of that award by Gen Re, the Liquidator moved to confirm the award in the Commonwealth Court, but did not attach the award to its motion to confirm in consideration of the confidentiality order entered in the arbitration and pending the Commonwealth Court's consideration of the right to publicize the award.
Gen Re, as reflected in the Commonwealth Court's Memorandum, did not oppose confirmation of the panel's award but moved to seal the award claiming that disclosure would put Gen Re "at a competitive disadvantage when seeking to resolve similar disputes in the future." Gen Re argued that "keeping the award under seal is consistent with the parties' expectations under the Confidentiality Agreement" and that "this matter involves unusual facts and a legal dispute that is not an issue of public concern."
In its
A new era for legacy?
Reinsurers have long maintained that the acceleration of payment obligations by a cedent has no bearing on their own payment obligations. In rejecting this assumption, the Westmoreland reinsurance decision has major ramifications, not only in relation to insolvency cases but also all legacy portfolios where finality and accelerated closure are being sought. Moreover, the Commonwealth Court's denial of Gen Re's motion to seal makes clear that, while the allegations and facts set forth in pleadings relevant to an arbitration may remain confidential absent some compelling public interest, the public - and the industry - have a right to know and be guided by the outcome, particularly in matters involving insolvent estates.
Having been engaged by the
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