Superior National Headed for Liquidation

Obtaining a Liquidation Order is the next step in the rehabilitation plan for the Superior National Insurance Companies, which were taken over by the California Department of Insurance (CDI) on March 3, 2000.

The order will invoke the claims paying responsibilities of the California Insurance Guarantee Association (CIGA) in Los Angeles and the guaranty funds in other states-essentially ensuring that policyholders and claimants are paid. At this point, there are approximately 46,000 claims, and the net liability to CIGA is roughly $400 million, according to Lawrence Mulryan, executive director of CIGA.

“The dollar amount that CIGA will pay depends to what degree these [claims] are offset by assets recovered by the estate,” Mulryan said. “We are working to see that it’s not a problem; we have some funds, we will continue to work with the CLO [Conservation and Liquidation Office] to recover assets.”

The CLO has been working out of Superior National’s offices since the takeover. A spokeswoman in the office of Robert Fernandez, estate trust manager of Superior National, reported that the CLO are “very nice people to work with.”

Valid policyholder claims that are either not covered by or are in excess of the limits paid by CIGA will be administered by the CLO. CIGA was established to meet the obligations of insolvent insurers by administering and disbursing covered claims. According to the CDI, liquidation comes only after every effort is made to help troubled companies get back on their feet. “We’re not the regulators and have no legal role until the company is found to be insolvent and liquidated,” Mulryan said. “We are working closely with the state regulators and state regulatory offices to be in the best position to fulfill our statutory responsibilities to cover claims under Superior policies.”

The Order of Liquidation is due to be entered Sept. 15. Once the order is issued, the insurance company is closed, all outstanding policies are cancelled and the company’s remaining assets are sold.

According to the CDI, the goal of liquidation is to use the money acquired from selling the assets to pay off the company’s debts and outstanding claims. It’s no quick and easy process. “It takes a long time for these obligations to be run off-it can take 10 years,” Mulryan said.

Meanwhile, Kemper Insurance Companies signed an agreement on Aug. 18 finalizing the rehabilitation plan for Calabasas-based Superior National. A temporary suspension of claims-related payments was also lifted.

“We have reached an agreement in principle with CIGA to be the servicing claims facility for covered CIGA Superior National claims,” said Linda Kingman, vice president of corporate communications for Kemper.

Kemper has been interested in Superior’s struggles since the beginning, when the CDI put out its Request for Proposals on May 5. The Conservation Court approved Kemper’s bid on June 30 and approved a contract for the transfer of certain assets of the Companies. With 1999 revenues of approximately $3 billion, Kemper is a nationwide p/c insurance and risk management giant. What was the appeal to get involved with the Superior National headache?

“We are always interested in profitable growth opportunities,” Kingman said. “That is particularly true in a sector of the market like workers’ comp, which represents one of our traditional strengths in an area where we have significant experience and expertise. I think this will be a good agreement for Kemper and for policyholders.”

Kingman said the agreement to administer claims, along with the entire formal regulatory rehabilitation plan, will be filed for approval with the Superior Court. “Hopefully, it will be finalized; although you never know what’s going to happen when you’re ironing out final details and getting everything finished up, but we think it will be finished pretty soon.”