James Veach on Union Indemnity's Belated Distribution: Tumult on the way to a First Partial Payment
The mid-1980s were the golden age of insurance insolvency. The current sub-prime meltdown and the agonies at mono-line insurers MBIA and Ambac scare a lot of people about the consequences of slipping from a AAA to a AA rating. But the 1980s, on the other hand, saw dozens of insurers and several large carriers writing business in all fifty states go down like duck pins. These failures stressed guaranty funds across the country and sparked Congressional hearings about these insurers' "Failed Promises."
What happened to those companies? James Veach, a partner in Mound, Cotton, Wollan & Greengrass's New York City office, looks at Union Indemnity Insurance Company as its Receiver seeks a liquidation court's permission to make an initial, partial distribution. Union Indemnity illustrates the danger of litigation undertaken by different counsel seeking different goals. That litigation wound up "'eliminating . . . all of Union's reinsurance recoverables, which were then quantified at approximately $200,000,000.'"
Union Indemnity's two-decade long liquidation also underscores how long it takes to unwind a policy-issuing entity. Veach touches on recent appellate activity concerning New York's Liquidation Bureau, as well as changes in New York's insurance insolvency laws that sparked an objection to the Liquidator's proposal to begin closing the estate.
Veach suggests that the receivers of failed insurance companies should consider "hiring an historian. Each failed insurer and reinsurer has its own cautionary tale to tell. Before relegating closed estates to the warehouse, how about a real closing report, one that focuses on why the company failed, the role of the regulator in these failures, and the consequences of the ensuing insolvency. A true closing report might help regulators, legislators, insurers, reinsurers, insurance consumers, and liquidators avoid repeating past mistakes."
After all, your author concludes, those who don't read their history are doomed to — you-know-what.
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