Battle Over Reliance Assets Heats Up

The fight for control of the assets of Reliance Insurance Co.(RIC) between the Pennsylvania Department of Insurance, which took over administration of the company last June, and the other creditors and investors of its parent company, Reliance Group Holdings (RGH), which filed for bankruptcy protection, continues to rage.

By some estimates more than $8.7 billion may be at stake as the Department seeks to deal with some 200,000 claims and more than 15,000 legal actions. It recently obtained a 180 day delay on some of the more major actions brought by creditors, including Bank of America and Bank One, but a number of smaller lawsuits will be allowed to proceed.

Meanwhile the Department has challenged RGH’s bankruptcy petition, arguing that it was filed in “bad faith,” and it’s seeking the return of an estimated $95 million that RIC paid to RGH. It has also indicated that it may seek to recover additional funds from Saul Steinberg, the flamboyant financier who headed both companies, and from officers and directors involved in their operations.

In a related ruling a Pennsylvania court empowered the Department to seek the return of funds totaling $334 million that are on deposit with state insurance departments throughout the U.S. California authorities, who hold about a third of that, have not yet indicated whether they will accede to the order, or will oppose challenge it in the courts.