Case Number: BS061974    Hearing Date: August 19, 2014    Dept: 310

INSURANCE COMMISSIONER OF THE STATE OF CALIFORNIA V. SUPERIOR NATIONAL INSURANCE COMPANY
AND CONSOLIDATED PROCEEDINGS
Case No.: BS061974
Hearing Date: 8/19/14
Department 310

MOTION #1: APPLICATION FOR APPROVAL OF
REINSURANCE COMMUTATION AND SETTLEMENT AGREEMENT
WITH GLOBAL REINSURANCE CORPORATION OF AMERICA

TENTATIVE RULING

Grant Motion for approval of agreement

DISCUSSION

On September 26, 2000, the Insurance Commissioner was appointed as liquidator of the Superior National Insurance Companies, including Superior Pacific (“the Insolvent Insurers”), pursuant to orders appointing the Insurance Commissioner as Liquidator and Restraining Orders. Prior to their insolvency, the Insolvent Insurers entered into a number of reinsurance agreements with various reinsurers to reinsure their workers’ compensation obligations. In an effort to wind up the Insolvent Insurers’ affairs, the Commissioner has negotiated with reinsurers to commute reinsurance agreements, and to fully and finally resolve the obligations between the Insolvent Insurers and their reinsurers.

The Commissioner, in his capacity as Liquidator of California Compensation Insurance Company, Commercial Compensation Casualty Company, and all of their predecessors, successors, subsidiaries and affiliated companies, seeks court approval under Insurance Code §1037 for a commutation and settlement agreement entered into with Global Reinsurance Corporation of America (“Global Re”) on January 31, 2014.

The Commissioner notes that Global Re reinsured portions of the Insolvent Insurers’ workers’ compensation liabilities (set forth in Exhibit A to the Reinsurance Commutation and Settlement Agreement between the Insolvent Insurers and Global Re). The Commissioner states he has agreed to commute those liabilities with Global Re for the total sum of $2,500,000. This amount represents the total present value of the net expected outstanding obligations due from Global Re (including the undiscounted unpaid balance of the billed insurance).

Insurance Code §1037 provides in pertinent part as follows:

Upon taking possession of the property and business of any person in any proceeding under this article, the commissioner, exclusively and except as otherwise expressly provided by this article, either as conservator or liquidator:

(a) Shall have authority to collect all moneys due that person, and to do such other acts as are necessary or expedient to collect, conserve, or protect its assets, property, and business, and to carry on and conduct the business and affairs of that person or so much thereof as to him or her may seem appropriate.

(b) Shall collect all debts due and claims belonging to that person, and shall have the authority to sell, compound, compromise, or assign, for the purpose of collection upon such terms and conditions as the commissioner deems best, any bad or doubtful debts.

(c) Shall have authority to compound, compromise or in any other manner negotiate settlements of claims against that person upon such terms and conditions as the commissioner shall deem to be most advantageous to the estate of the person being administered or liquidated or otherwise dealt with under this article.

(d) Shall have authority without notice, to acquire, hypothecate, encumber, lease, improve, sell, transfer, abandon, or otherwise dispose of or deal with, any real or personal property of that person at its reasonable market value, or, in cases other than acquisition, sale, or transfer on the basis of reasonable market value, upon such terms and conditions as the commissioner may deem proper. However, no transaction involving real or personal property shall be made where the market value of the property involved exceeds the sum of twenty thousand dollars ($20,000) without first obtaining permission of the court, and then only in accordance with any terms that court may prescribe.

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The enumeration, in this article, of the duties, powers and authority of the commissioner in proceedings under this article shall not be construed as a limitation upon the commissioner, nor shall it exclude in any manner his or her right to perform and to do such other acts not herein specifically enumerated, or otherwise provided for, which the commissioner may deem necessary or expedient for the accomplishment or in aid of the purpose of such proceedings.

Plainly, §1037 vests in the Commissioner significant discretion to settle claims on behalf of liquidated insurance companies, like the Superior National entities here. See generally In re Executive Life Insurance Company (1995) 32 Cal.App.4th 344. Mark Akamine, Vice President of Reinsurance by the Commissioner’s Conservation & Liquidation Office (“CLO”), states that the instant agreement is a fair and reasonable resolution of Global Re’s reinsurance obligations to the Insolvent Insurers. This is because the Insolvent Insurers will be provided with an immediate infusion of cash and receive the full benefits of the reinsurance agreement. [Akamine Decl., ¶7.] Further, Akamine states that the commutation will eliminate the potential credit risk associated with all reinsurance agreements. [Id.] As such, Akamine concludes that the Reinsurance Commutation and Settlement Agreement with Global Re is in the best interest of the Insolvent Insurers’ estates, their policyholders, and other creditors. [Id.]

In particular, this is because: 1) the estate will be credited the full net present value of the expected reinsurance obligations due to the Insolvent Insurers allowing the Insolvent Insurers to receive the full benefits under the reinsurance agreement; 2) the commutation will reduce the administrative expenses associated with billing and collecting reinsurance obligations; and 3) the Insolvent Insurers’ liquidation caseloads will be reduced, improving their manageability and accelerating their resolution. [Motion at 6:23-28.]

The Commutation and Settlement Agreement itself is fairly straightforward, and states that upon execution of the Agreement, the Liquidator will draw down from the Letter of Credit (“LOC”) No. 639332-01 the sum of $2,500,000 within 10 days of the Court’s approval. The Liquidator also agrees to release and discharge Global Re for all liabilities and obligations arising under or related to the contracts, and Global Re releases the Liquidator. Again, the Liquidator has concluded that this agreement is in the interests of the Insolvent Insurers. Under these circumstances, and pursuant to the Liquidator’s wide discretion to settle claims in the interests of the liquidated entities under Ins. Code §1037, the application is granted.

MOTION #2:APPLICATION TO AMEND ORDER
APPROVING CLASS 2 CLAIM OF TAMMY SELLERS AND
TO DISBURSE ASSETS TO TAMMY SELLERS

TENTATIVE RULING

Grant motion

DISCUSSION

On May 24, 2011, this Court found good cause to issue an order approving the Class 2 Claim of Tammy Sellers . Under that order, the Liquidator was authorized to allocate 75% of the approved claim to the claimant and withhold 25% ($102,745) of the claim to be transmitted to Medicare.

After obtaining the Court-approved allocations, The Chief Claims Officer of the State of California Insurance Commissioner, Mr. John Battle, learned that Medicare would not accept a lump sum distribution from the CalComp liquidation estate, and advised that payments on the approved Class 2 claim must be made directly to Ms. Sellers. In the alternative, it was suggested that a Medicare Set Aside Trust could be established. Mr. Battle determined that the latter approach was unworkable, since no mechanism existed to fund such a trust on an ongoing basis. Accordingly, Mr. Battle concluded that the entire claim must be paid directly to Ms. Sellers, who may apply to Medicare for additional benefits only after the payments from CalComp have been exhausted .

Insurance Code §1037 vests in the Commissioner significant discretion to settle and manage claims on behalf of liquidated insurance companies, like the Superior National entities here. See generally In re Executive Life Insurance Company (1995) 32 Cal.App.4th 344. For the reasons set forth above, and pursuant to the Liquidator’s wide discretion to manage and settle claims in the interests of the liquidated entities under Ins. Code §1037, the Court finds good cause to grant the application to amend the May 24, 2011 order.