WASHINGTON—A risk retention group which insures taxicabs primarily in Pennsylvania and New Jersey has been placed in liquidation, setting off a scramble by cab owners to find new insurance.
An order placing First Keystone Risk Retention Group Inc., a commercial auto insurance company organized and licensed in South Carolina, was signed Oct. 21 by a South Carolina judge, setting off a scramble by taxicab medallion owners in Philadelphia to find new insurance.
The failure is interesting because the insolvency and liquidation of a risk retention group is rare, with only two or three winding up being taken over annually, according to Michael J. FitzGibbons, of FitzGibbons and Company, Inc., Scottsdale, Ariz. Fitzgibbons has been assigned to handle the liquidation. And, unlike most property and casualty insurance companies, there are no guaranty funds available to help pay off claims.
But, in this case, lightning has struck twice. First Keystone's failure left one-quarter of Philadelphia taxi drivers faced with the prospect of being not allowed on the street last weekend unless they quickly found insurance. The exact same thing happened to Philadelphia taxicab medallion owners in September 2013, when Ocean Risk Retention Group failed.
"Failures are relatively rare, with two or three failures across the U.S.," FitzGibbons said. "These failures are usually in groups involved in commercial risks, general liability," he said. He said the last two he has been involved with involved commercial auto, livery, and general liability.
"But, there is no trend here," FitzGibbons said. "Risk retention groups can be in all liability lines of business." FitzGibbons said he has had broad experience in liquidating risk retention groups, which is why he was retained by the South Carolina Department of Insurance.
First Keystone insured 466 of Philadelphia's 1,600 taxis; Ocean Risk insured 480 of Philadelphia's 1,600 medallion cabs when it failed last September.
FitzGibbons said First Keystone has been troubled with its 2006 through 2010 book of business. It had been writing liability coverage in limits of $1 million and $1.5 million for limousines and other livery vehicles. Because of high claims, management exit the higher limit lines of business. In 2011, the company underwrote its limits, offering only the minimum limits under state law, for example, $50,000 to $100,000.
The latter book of business was profitable, but because of semi-annual actuarial reports they were required to obtain by South Carolina officials, it was determined in a report issued Sept. 24th that the old claims had wiped out their net worth, FitzGibbons said. As a result, they were ordered to stop writing new business and non-renew existing business and immediately filed for liquidation, he said.
Based on June 30, 2014 financials, FitzGibbons estimated that existing claimants could receive up to two-thirds of their legitimate claims. "This, however, is dependent on the formal proof of claims process," he said.
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