The fight for Reliance Insurance Company’s (RIC) assets between the Pennsylvania Department of Insurance (PDI), which took over the failed insurer last June, and the creditors and investors of its parent company, Reliance Group Holdings (RGH), which has filed for bankruptcy protection, continues unabated. (See IJ, June 25, 2001.)
PDI spokeswoman Rosanne Placey confirmed that “we are proceeding with the aggressive marshalling of all Reliance assets.” As yet there are no final figures for the outstanding claims, nor the amount of assets available to pay them. Placey’s previous estimate that the investigation would take “at least six months” remains unchanged.
Placey did indicate, however, that recent reports that RIC owes $8.7 billion were misleading. “Numbers like that include the payment demands in every lawsuit in which anyone insured by Reliance is named, whether or not there’s been a judgment, or even a trial, as well as all the claims by policyholders.” When all the litigation has been settled, the actual amount owed on Reliance’s policies may be substantial, but nowhere near some of the amounts quoted.
The PDI is in fact still optimistic about its chances of rehabilitating the insurer, and gathering sufficient assets to meet its liabilities without dipping into state guarantee funds. Concurrently with obtaining the rehabilitation order, it filed suit to recover $95 million it claims was wrongfully transferred from RIC to RGH.
Subsequently it asked the bankruptcy court in New York to disallow RGH’s bankruptcy petition on the grounds that it was filed in “bad faith,” both as a means of transferring funds to corporate creditors and large investors at the expense of policyholders, and to shield officers and directors from potential damage actions for breaches of fiduciary duties in regard to RIC.
In other moves, aimed at maximizing the amounts available to pay claims, the PDI reduced the severance payments to laid-off RIC workers, and has put its headquarters building up for sale.
Two recent court rulings have also brightened the picture. While most of the 15,000 lawsuits involving RIC will be allowed to proceed after the expiration of a two-month stay, for the most part they involve workers’ compensation, automobile injuries, construction coverage and other types of personal injury claims. They do not impend huge adverse judgments.
A number of higher profile cases, however, have been stayed for an additional six months by Pennsylvania Judge James Gardner Colins.
The cases include securities fraud complaints against RIC clients, Bank One, Bank of America, Cendant Corp. and others, and could result in verdicts exceeding $5 million. While Judge Colins’ order is only binding on Pennsylvania Courts, he specifically requested that other jurisdictions, including the Federal Courts, defer to his ruling on principles of comity, and in deference to the fact that his court is charged with supervising RIC’s rehabilitation.
He also granted the PDI authority to seek the repatriation of an estimated $334 million in deposit funds held by other states’ insurance departments. The California Department of Insurance holds the biggest amount, in excess of $110 million, and state officials haven’t yet indicated whether they will comply with any such request, or seek to oppose it through the courts.
The PDI is also contemplating legal action against RCI’s and RGH’s officers and directors, including its flamboyant ex-CEO Saul Steinberg. Placey confirmed that “Pennsylvania’s chief counsel is meeting with private attorneys for the Department, and they’re looking at all potential third party claims this week [Aug. 20-24].” She indicated that a decision would probably be made by the end of the month.
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