Pa. Commish Wants

Legion Re Ruling Vacated

July 9–Pennsylvania Insurance Commissioner Diane Kokenhas filed a motion in the Commonwealth Court of Pennsylvaniarequesting that Judge Hannah Leavitt vacate her ruling permittingcertain Legion policyholders direct access to reinsurers.

On June 26, the court ordered the liquidation of Legion and itsVillanova subsidiary. In addition, several large policyholders weregranted permission by the court to collect claims directly from thereinsurers of Legion and Villanova. These policyholders have claimsthat exceed the $300,000 maximum limit generally available frommost guaranty funds.

The court found that these policyholders, which include AmericanAirlines Inc., Pulte Homes Inc., Rural Metro Corporation and thePsychiatrists' Purchasing Group, are third-party beneficiaries ofthe reinsurance contracts because Legion and Villanova operatedsolely as fronting companies and assumed no direct risk ofloss.

Reinsurers involved include Transatlantic Reinsurance Company,Lloyds of London, Swiss Reinsurance America Corporation andAmerican Reinsurance Company.

Commissioner Koken's July 3 motion contends that no Pennsylvanialaw grants policyholders the right to recover directly fromreinsurers. There is no reason to place certain policyholders infront of others and give them preferential treatment in obtainingtheir share of the Legion estate, according to the motion.

In her ruling, Judge Leavitt had criticized the InsuranceDepartment's handling of Legion and Villanova, noting that moreshould have been done to attempt to rehabilitate the companies andcollect reinsurance.

But Pamela Woldow, the department's chief counsel, said it wasthe judge's delay in handing down her rulings that caused most ofthe problems in this case.

Reproduced from National Underwriter Edition, July 14, 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.