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3/27/2015 I NSURER & S URETY I NSOLVENCY & I TS EFFECT ON C - - PDF document
3/27/2015 I NSURER & S URETY I NSOLVENCY & I TS EFFECT ON C - - PDF document
3/27/2015 I NSURER & S URETY I NSOLVENCY & I TS EFFECT ON C LAIMS A DAM P. H ANDFINGER G UY W. H ARRISON T Y G. T HOMPSON Insurer & Surety Insolvency Insurer & Surety Insolvency 1 3/27/2015 Insurer & Surety Insolvency
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FLORIDA’S INSURERS REHABILITATION AND LIQUIDATION ACT
INSURER & SURETY INSOLVENCY & ITS EFFECT ON CLAIMS
IRLA’s Purpose
Insolvency occurs when the assets are insufficient to
discharge all of its liabilities.
Created to protect policy holders and claimants. Promotes efficient administration of surety and
insurer receiverships by facilitating interstate cooperation.
A “receivership” is the placement of a surety or
insurer under the control of a “receiver.”
Florida Department of Financial Services’ Division of
Rehabilitation and Liquidation.
Receivership Roles of the State and the Court
Under Chapter 631, Florida Statutes, a “delinquency
proceeding” constitutes “the sole and exclusive method of liquidating, rehabilitating, reorganizing,
- r conserving an insurer.”
The proceedings are conducted in the Circuit Court
- f Leon County.
There the Director of the Office of Insurance
Regulation provides the Department with evidence that the surety or insurer is insolvent.
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Receivership Roles of the State and the Court
At the court’s direction, the Department takes
possession of the surety’s or insurer’s assets and administers them in accordance with an approved claims report.
The Department assumes the rights and obligations
- f the insolvent surety or insurer and directs the
resolution of claims as approved by the Court.
CLAIMS AGAINST SURETIES
INSURER & SURETY INSOLVENCY & ITS EFFECT ON CLAIMS
Procedure for Resolving Claims
The IRLA’s claims procedure constitutes the
“exclusive means for obtaining payment of claims from the insolvent surety or receivership estate.”
The Department is to “notify all persons who may
have claims against the insurer that they must file such claims with it at a place and within the time specified in the notice, or else such claims will be forever barred.”
The Department is to evaluate the claim and file a
comprehensive claims report and specify its recommendations.
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Procedure for Resolving Claims
Upon court approval, the Department gives notice to
the claimant of the amount recommended and the deadline to file any objections.
Cooperation and Comity
Florida extends reciprocity in the treatment of
policyholders in receivership to “reciprocal states.”
National Association of Insurance Commissioners
Rehabilitation and Liquidation Model Act; or
Uniform Insurers Liquidation Act.
See i.e. Frontier Insurance Co. v. Am. Title Services See i.e. Am. Bonding Co. v. Coastal Metal Sales, Inc.
Automatic Stay of Claims
The IRLA prohibits any actions against Florida-
domiciled sureties or insurers in receivership.
The automatic stay is permanent and survives the
entry of an order of conservation, rehabilitation, or liquidation.
Also bars commencement or continuation of any judicial,
administrative, or other action against a surety or an insurer; and
the enforcement of a judgment against the surety or an
insurer.
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Automatic Stay of Claims
Exception to the rule is limited to the enforcement of
a judgment against a surety or an insurer by the judgment creditor.
It must prove:
(1) that the judgment is not voidable or void by the
Department; and
(2) that the property from which the judgment would be
satisfied does not constitute premium funds or another asset which belongs to the surety or insurer. See i.e. In re Receivership of Guarantee Sec. Life Ins.
Co.
Filing Claims with Receiver
The IRLA contemplates that “all claims against an
entity in receivership be filed with the receiver and determined by the receivership court.”
The Department is entitled to take possession of the
surety’s or insurer’s assets and distribute them in accordance with a court approved claims report.
It must also distribute such assets in accordance with
the general priority of claims statute.
See i.e. Consumers Super Mkt. No. 2, Inc. v.
Underwriters at Lloyds
Filing Claims with Receiver
Where claims may be filed depends on where the surety
- r insurer is domiciled and whether an ancillary
receivership exists.
The “domiciliary state” is the state where a surety or
insurer is incorporated or organized.
The “ancillary state,” means any state other than a
domiciliary state.
In proceedings against a surety or an insurer domiciled
in a reciprocal state, Florida resident claimants may file claims with the domiciliary receiver, or with any ancillary receiver established by Florida.
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Filing Claims with Receiver
In proceedings against a surety or an insurer
domiciled in Florida, non-resident claimants must
- nly file claims in the domiciliary receivership unless
such claimants reside in reciprocal states with ancillary receivers.
The final allowance of claims in ancillary proceedings in
reciprocal states is conclusive as to the amount and as to priority of special deposit or secured claims.
But it is not conclusive as to priorities against general assets.
Filing Claims with Receiver
Section 631.271, Florida Statutes governs the priority
- f the distribution of claims in a domiciliary
proceeding.
The order of distribution of the domiciliary state
controls where there is one or more reciprocal states.
However, residents of reciprocal states have equal
priority to the payment of their claims from the general assets, regardless of their location. Roles of the Receiver and Court in Evaluating and Approving Claims
The impact of the receiver’s initial evaluation of
claims is critical.
See i.e. Bender v. State, Dep't of Fin. Servs.
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Claims by the Receiver
The receiver is also required to pursue claims against
policyholders or third parties who possess property belonging to the insolvent surety’s or insurer’s estate.
See i.e. In re Receiverships of Southeastern
Reinsurance Co.
See i.e. Chase Bank of Texas Nat. Ass'n v. State,
Dep't of Ins.
PRACTICAL CONSIDERATIONS
INSURER & SURETY INSOLVENCY & ITS EFFECT ON CLAIMS
Out of State Liquidation Proceedings
Out-of-State claimants from reciprocal states should
be treated fairly.
The claimant should file its claims in accordance
with the requirements of the domiciliary state.
The initial expense should be limited. The impact of out-of state stay orders may be
disputed by the parties.
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Impact on Active Florida Litigation
The claims against the insolvent surety or insurer
should be stayed.
Upon receipt of an order of rehabilitation or
liquidation, the claimant will need to reevaluate its claim and closely examine other sources of recovery. Claim Submission and Negotiation – The Receiver’s Perspective
Oftentimes the State or Department will appoint
attorneys from the private sector to administer the receivership.
The State regulators closely watch and approve the
marshalling of assets and their ultimate disposition.
The incentive is to pay claimants, but to treat all
claims skeptically to preserve assets and to treat the claimants fairly.
There is no incentive for the receiver to resolve one
claim over any other – except when negotiating. Claim Submission and Litigation
The receiver will require a well-documented claim. The claim approval process may proceed to court,
but by statute, it is not a de novo proceeding.
The court is going to be limited to the record
established by the claimant.
Therefore, if the receiver determines that the claim is
not documented properly, the court will likely sustain the receiver’s determination.
The claimant should therefore focus of provable,
hard numbers over less-reliable estimates.
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Claim Negotiation
There are two choices:
Submit a fully-documented claim and wait for a final
determination (the “wait and see approach”); or
Negotiate a prompt settlement.
Under the “wait-and-see” approach, the costs are
less, but the recovery at the end of the insolvency will likely be less (or zero).
Negotiating a prompt settlement it likely the best
- ption, because it will force the receiver to focus on