Old Republic Upheld in Asset Transfer of Bankrupt Florida Title Insurer Subsidiary

Old Republic National Title Insurance Co., one of the largest title insurers in Florida, did not fraudulently transfer assets from a bankrupt subsidiary, and the bankruptcy court did not err in excluding an expert’s valuation testimony, a federal appeals court decided this week.

“Although the (bankruptcy) court recognized that some of the facts in the case could suggest the Debtor’s intentions were fraudulent, the documented benefits to policyholders were more likely the overriding purpose behind the transfers, outweighing any facts implying otherwise,” a panel of the U.S. 11^th Circuit Court of Appeals said in its Nov. 24 opinion.

It’s a case that had churned through U.S. bankruptcy and district courtrooms for more than 15 years after an Old Republic company’s attorneys reportedly misused trust fund money and sent the company, Attorneys Title Insurance Fund, spiraling into financial straits. The complex litigation examined questions about what a bankrupt insurance company can do with its assets, how those assets are valued, and how transactions can be challenged by the creditors’ bankruptcy trustee.

The case began in 2008, when the Florida-based debtor, also known simply as ATIF or “The Fund,” had lost millions of dollars through attorneys’ alleged malfeasance, a subsequent loss of business, and a drop in the value of its stock market investments. The title insurer entered into a joint venture agreement with Old Republic Holding Co. and formed a new firm, Attorneys Title Financial Services.

Florida’s Office of Insurance Regulation in 2011, under then-Commissioner Kevin McCarty, approved the joint venture agreement. In 2015, though, The Fund suffered another financial crisis as the value of its assets versus liabilities dropped again. The OIR notified ATIF that it would refer the company to the Florida Department of Financial Services to place it in receivership, the court noted.

But by then, the debtor company had transferred most of its assets and was no longer a true insurance company, the court and attorneys explained. That allowed ATIF to file for reorganization and protection under Chapter 11 of the U.S. Bankruptcy Code. (In most cases, financially troubled insurance companies in Florida are deemed insolvent, not bankrupt, and are put into rehabilitation or liquidation proceedings.) In 2016, Old Republic National Title Insurance, which was founded in 1907, moved its headquarters and domicile from Minnesota to Florida.

The creditors’ trustee, Daniel Stermer, objected to the whole restructuring, arguing that ATIF had control of much more in assets and that creditors should be repaid at a higher rate. He hired an expert witness who contended that ATIF’s assets were worth some $80 million when transferred to the other Old Republic companies, but The Fund had received less than half of that in return.

The bankruptcy court found that the expert, Allen Pfeiffer, had miscalculated – he included the value of assets that were no longer controlled by ATIF.

“The court reasoned that, although Pfeiffer initially appeared to possess specialized knowledge, his testimony revealed that he did not possess any certifications or other credentials as an appraiser or valuation expert, and he did not ‘rely on textbooks’ when valuing the assets subject to the Master Agreement,” the appellate judges noted.

The creditors’ trustee appealed, but the U.S. District Court for Middle Florida upheld the bankruptcy judge. After further appeal, the 11^th Circuit affirmed the district court and the bankruptcy court’s rulings.

“Ultimately, the (bankruptcy) court found that the Debtor had received reasonably equivalent value in exchange for its tangible assets,” Appeals Court Judge Nancy Abudu wrote in the opinion this week. “In making its determination, the court focused on the parties’ stipulation that the value of the Debtor’s tangible assets was approximately $47 million, that the value of (Old Republic) Title’s assumption of title insurance liabilities was between $45 and $57 million…”

A lawyer for the trustee declined to comment on the outcome of the litigation. The opinion can be seen here.

Topics Carriers Florida