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The insurance commissioner appealed the decision to the Supreme Court because allowing the four interveners special status reduced the pot available for all claimants, the insurance commissioner's lawyer claimed in the brief asking the High Court to review the case.

Another reason the Insurance Department appealed is that the lower court decision also changed the procedures the department required to get a claim paid in a liquidation, the department said.

Specifically, in addition to approving direct access by those four policyholders, the Pennsylvania Supreme Court's decision affirms the lower court's mandate that the liquidator must create a procedure for allowing direct access for policyholders in situations similar to those of the policyholders.

The lawyers for Pulte Homes at Anderson, Kill & Olick P.C. in Philadelphia lauded this aspect of the decision. "This will allow a number of other policyholders the ability to pursue their direct access rights to reinsurance in the Commonwealth Court insolvency proceedings," the lawyers for Pulte said.

The lawyer for Pulte Homes, one of the four companies that benefited from the decision, said the decision was precedent-setting. Tim Law of Anderson Kill's Philadelphia office said that while a case in Texas touched on the issue, "certainly this is the most detailed treatment of the issue anywhere."

Lawyers for Anderson, Kill also said the decision is important to policyholders because, unlike Legion and Villanova, "the reinsurance companies on most of the insurance programs involving Legion and Villanova are solvent and able to pay claims."

The case is Koken v. Legion Insurance Company, 831 A.2d 1196 (Pa. Commw. 2003).

The Pennsylvania High Court did not issue its own opinion in the case, with the majority merely adopting the decision of Commonwealth Court Judge Mary Hannah Leavitt, who originally made the decision. Two of the Court's judges did issue a dissent, however.

The policyholders who sued include Pulte, Psychiatrists' Purchasing Group, Inc., Rural/Metro Corporation, and American Airlines, Inc.

The intervened in the liquidation after the liquidator, the Pennsylvania Insurance Department, placed their claims in the general pot to be paid from the combined assets of Legion.

However, in the case of the four companies, Legion had merely acted as a "fronting" or "pass-through" to issue certificates of insurance to enable Pulte to satisfy state and regulatory financial responsibility requirements, according to the facts of the case.

For its services, Legion received a fronting fee every year. The reinsurance companies bore the entire risk of any losses in excess of Pulte's deductible, lawyers for Pulte argued. A third party administrator handled all claims that were covered by the general liability insurance policies.
"Each of the above-named Policyholder Intervenors has a contractual right, as a third-party beneficiary, to payment by the reinsurer on its losses,"

Judge Leavitt said in her decision. The decision also pointed out that direct payment by the reinsurers "will relieve Legion of the expenses of claims adjustment, reinsurance billing and collections. At the same time, Legion will not have the liability for substantial claims."

Other creditors and the state Insurance Department as liquidator had contended that "'sophisticated' policyholders are less deserving than others and, thus, prime candidates for having their contractual expectations compromised."