The San Mateo Superior Court, overseeing the rehabilitation of Applied Underwriters’ California Insurance Company, denied a motion by a New York employer seeking recognition as a claimant in the case to access the plan’s litigation settlement provisions. The NY employer can file again, but the Department of Insurance must first amend the rehab plan to allow out-of-state employers to participate.
The Court adopted a tentative ruling denying the motion by Air-Sea Packing Group, a former CIC insured in Applied Underwriters’ EquityComp program. The company was in litigation with Applied over the illegal reinsurance participation agreement when CIC was conserved, and the litigation stayed pending the carrier’s rehabilitation. It now wants access to the plan’s settlement provisions in Schedule 2.6.
California, in its role as conservator, did not oppose Air-Sea’s motion. The Court, however, says that was not enough.
“Having considered all of the papers filed in relation to the Motion, the Court confirms that it invited the Commissioner to apply to amend the Plan, rather than inviting motions such as this one to include New York policyholders in the Schedule 2.6 process piecemeal,” the San Mateo court wrote in the tentative ruling that it ultimately adopted after hearing. “This is consistent with the face of the Plan Order and with the Conservator’s role as a fiduciary bound to act in the interests of many—which Movant is not—and avoids further motions from others similarly situated to Movant.”
Outstanding Litigation
California seized CIC in November 2019 after Applied Underwriters sought to merge the carrier with a hastily created alter ego in New Mexico without Insurance Commissioner Ricardo Lara’s approval. The conservation put a halt to dozens of legal disputes between insureds and CIC in California and several other states.
The California Department of Insurance developed a rehabilitation plan that will resolve pending litigation and then take CIC’s California certificate of authority. The plan, which was approved by the Court last year, calls for a public auction of CIC’s California assets and the establishment of a system to resolve pending litigation.
Schedule 2.6 of the rehab plan provides three options for resolving the pending cases:
- Pay the premiums under the existing guaranteed cost policy issued by CIC, or get a refund if there was an overpayment, or
- Pay a premium under what is determined to be a standard Retrospective Rating Plan based on California’s ‘CalRetro Plan’ or receive a refund for overpayment, or
- Enforce what Applied proposed under its solicitation document, the “Program Summary and Scenarios,” or receive a refund for overpayment.
The Conservation and Liquidation Office contracted with the firm Baker Tilly Advisory Group to serve as an independent consultant overseeing the process. As the independent consultant, it will present the settlement options to the former insureds.
California Only
Currently, Schedule 2.6 applies only to policyholders in California. In briefings to the Court, the Conservator notes that Section 2.2 of the rehabilitation plan envisions the sale of CIC’s assets to a reinsurer and covers policyholders in Connecticut and New York, but the litigation settlement provisions do not.
“While the Conservator did request the inclusion of Connecticut or New York policies in the Assumption Reinsurance Agreement under Section 2.2 of the Rehabilitation Plan and the Court approved such inclusion, the Conservator did not request inclusion of Connecticut or New York policyholders in the litigation settlement provisions of Schedule 2.6 of the Rehabilitation Plan and the Court did not approve their inclusion” the Conservator notes in a response to Air-Sea’s motion.
The Conservator urged the San Mateo court to grant Air-Sea’s motion in the interest of judicial economy.
The Court declined.
“It is the Conservator’s role to make the application invited by this Court to seek the remedy that should be available to Movant and to others similarly situated. In doing so, the Commissioner should ‘include[e] citation of authority showing that Schedule 2.6’s remedies represent remedies available under New York law,’ as directed by this Court, more specifically than Movant has done in the instant Motion,” the Court wrote. “It is the role of the Conservator, the fiduciary charged with administering the Rehabilitation Plan, to apply to the Court to amend the Rehabilitation Plan as to all New York policyholders. It is not the role of the Court to grant or deny access to the Schedule 2.6 process on a case-by-case basis.”
Given the Conservator’s support for Air-Sea’s motion, the Court noted that it is “unclear” why the Conservator has not yet made the application to allow the out-of-state employers to participate in Schedule 2.6. Neither CDI nor the Conservation and Liquidation Office responded to questioning about their intentions to file or not file an amended rehabilitation plan that would allow out-of-state policyholders to avail themselves of Schedule 2.6’s remedies.
Attorney Daniel Rockey with Bryan Cave Leighton Paisner LLP is representing Air-Sea. Attorney Michael Strumwasser represents the Conservation and Liquidation Office with Strumwasser & Woocher LLP.
Copies of the San Mateo Superior Court’s tentative order denying Air-Sea’s motion that the Court adopted are available in our Resources section or by clicking here.