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Insurance Law

General Principles and Introductory Matters Concerning Insurer Insolvency and Bankruptcy – New Appleman on Insurance Law Library Edition, Chapter 96


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By Paige D. Waters and Stephanie O'Neill Macro

Table of Contents

§ 96.01       Brief History of Insurance Insolvency

            [1]        State Insurance Receivership Laws

            [2]        Relationship to Bankruptcy Law

§ 96.02 Major Principles of Governance of Insurer Insolvency and Bankruptcy

          [1]     Insurance Company Insolvency

                   [a]     Overview of Solvency Oversight and Receiverships

                        [b]        Definition of Insolvency

                             [i]      Statutory Definitions

                                    [ii]        Customs and Best Practices 

                                    [iii]       Case Law

                                    [iv]       Difficult Issues for Determining Solvency

                                    [c]        Definition of Receivership

                        [2]        Insurance Guaranty Associations

                                    [a]        The Legal Status and Nature of a Guaranty Association

[i] The Association Pays for Policyholder Claims That an Insurer Would Have Paid If Not for Its Insolvency

[ii] Most State Guaranty Associations Have Non-Profit Entity Status

[iii]       A Few Guaranty Associations Are Considered State Sub-agencies

                        [b] Role of Insurer Insolvency in Triggering Guaranty Association Coverage

                        [c] Relationship Between Guaranty Association and Receivership

            [3]        Insured Insolvency: Insurance as a Resource in Bankruptcy Proceedings

                        [a]        Insurance as an Asset of the Estate

                        [b]       Claims Against Other Insurance as Asset of the Estate

§ 96.03            Definitions of Terms and Roles

            [1]        Bankruptcy

                        [a]        Creditors

                        [b]       Debtor

                        [c]        Estate

                        [d]       Trustee

            [2]        Claimants of Insolvent Insurers

[a] Generally Priority of Payments Are Set Forth in the State Insurer Receivership Laws

                        [b] Policyholders, Including Those in Mutual Insurance Associations

                        [c]        Creditors

                        [d]       Employees

                        [e]        Shareholders

            [3]        Conservator

            [4]        Insolvent Insurer

            [5]        Liquidator

            [6]        Receiver

            [7]        Regulators Involved With Insolvency

   [8]        Rehabilitator

Paige D. Waters is a partner of Locke Lord LLP .  Her practice in insurance and reinsurance law includes extensive experience handling transactional, regulatory, and insolvency matters on behalf of national and international insurance and reinsurance clients. She represents a broad base of clients in the financial services and insurance industries, including life insurers, accident and health insurers, property and casualty insurers, health maintenance organizations, managed care organizations, mortgage and financial guaranty insurers, insurance receivers and estate creditors, private equity and hedge funds.  Ms. Waters has been ranked for the past eight years among the leading insurance transactional and regulatory lawyers in Chambers USA. She is a frequent speaker and serves on a number of insurance industry committees.  Paige is co-author of Chapter 14 Insurance Solvency Regulation, of this publication. Prior to entering private practice, Paige was senior counsel of the Office of the Special Deputy Receiver, representing the Illinois Director of Insurance as the statutory receiver of insolvent insurers.

Stephanie O'Neill Macro is Of Counsel of Locke Lord LLP.  Her broad insurance regulatory practice includes, advising clients on a wide range of issues, including formation and licensing of insurance companies, as well as holding company matters, including filings in connection with acquisitions and affiliate transactions, withdrawal from markets, reinsurance transactions, sales and distribution matters, privacy, information management, and document retention issues. Ms. Macro assists HMO’s with product development and filing.  She also assists insurance companies in responding to insurance department investigations and market conduct exams.  She represents service contract and home warranty companies on regulatory compliance matters.  Prior to entering private practice, Stephanie was director of Health Care Policy and Member Services at the Illinois Association of HMOs.

Paige D. Waters and Stephanie O’Neill Macro wish to thank the team of individuals who contributed to the research and drafting of this chapter, Jack Messmore, Timothy Farber, Benjamin Sykes and Brian Raynor.