Judge Orders Liquidation of Legion andVillanova

By Gary Mogel

A state court judge in Pennsylvania has ordered Legion InsuranceCo. and its subsidiary Villanova Insurance Co. to be liquidated,clearing the way for policyholders to collect a portion of theirclaims against these insurers from guaranty funds in states wherethe insurers wrote business.

In April 2003, Legion and Villanova were placed into liquidationby a state Superior Court in California as respects businesswritten in that state. That order gave 11,000 Legion policyholdersaccess to California's guaranty fund.

In addition to the liquidation order by the Pennsylvania court,several large policyholders were granted permission to collectclaims directly from the reinsurers of Legion and Villanova. Thesepolicyholders have claims that greatly exceed the $300,000 maximumlimit generally available from most guaranty funds.

Terry Cummings, a partner in the New York law firm Ohrenstein& Brown LLP, which represented Legion malpractice insurancepolicyholder Psychiatrists' Purchasing Group Inc. (PPG), praisedthe decision by Judge Hannah Leavitt of the PennsylvaniaCommonwealth Court.

PPG is one of the policyholders that will be permitted toapproach reinsurers directly for payment. Others include AmericanAirlines Inc., Pulte Homes Inc. and Rural Metro Corporation. By farthe largest claims are those of American Airlines, which total $140million and include losses stemming from the 9/11 terrorist attacksand the crash of an airplane in Queens, N.Y.

The major reinsurers involved include Transatlantic ReinsuranceCompany, Lloyds of London, Swiss Reinsurance America Corporationand American Reinsurance Company.

“PPG was the intended beneficiary of the reinsurance,” said Mr.Cummings. “Legion was never intended to be anything more than afront. Legion's business plan was to be a fronting company and notto take risks of its own.”

The Pennsylvania Insurance Department, which was criticized inthe judge's written opinion, was given until July 15 to draft a newliquidation order. Among other criticisms, the judge indicated thatthe Department did not do enough to try to rehabilitate Legion orcollect the $310 million in reinsurance. She called theDepartment's attitude toward Legion a “Kevorkian view,” a referenceto the Michigan doctor who assisted people to commit suicide.

“The judge justifiably excoriated the Department for notfollowing up on deals to rehabilitate Legion,” said Mr.Cummings.

Reproduced from National Underwriter Edition, July 7, 2003.Copyright 2003 by The National Underwriter Company in the serialpublication. All rights reserved. Copyright in this article as anindependent work may be held by the author.