Questions and Answers About the Liquidation Of Reliance Insurance Company (Reliance In Liquidation)

GENERAL INFORMATION

The Commonwealth Court of Pennsylvania placed Reliance Insurance Company into Rehabilitation on May 29, 2001. On October 3, 2001, the Commonwealth Court of Pennsylvania declared Reliance Insurance Company (Reliance) to be insolvent and ordered the company into liquidation.  Copies of relevant documents and updated information are available on the Department’s web site at www.insurance.state.pa.us.

Q1.      What happens when a company becomes insolvent and is liquidated?

 Liquidation is similar to bankruptcy.  When a company is liquidated, the Insurance Department’s Office of Liquidations, Rehabilitations and Special Funds gathers the company’s assets and determines what liabilities, such as bills and claim payments, it has.  The Statutory Liquidator then develops a plan to distribute the company’s assets according to established law and submits the plan to the Court for approval.  The liquidation process is expected to take several years.

Q2.      You say Reliance was ordered liquidated.  Does this mean my policy is   worthless? 

No.  Although Reliance has been placed into liquidation, the guaranty association in the state where you reside or where the property is situated is obligated to provide coverage contained in insurance policies issued by Reliance subject to certain limitations.  Any claim or portion thereof which is not covered by a guaranty association becomes a claim against the Reliance estate, and the amount deemed to be an allowed claim will be paid to the extent funds are available with all other claims in the same category.  These claims will not be paid for several years. 

Q3.      Will my policy be canceled because of the liquidation? 

Your paid policy will terminate at its normal expiration, upon replacement of your policy or 30 days from the date of liquidation, whichever is sooner.  In no case will coverage be in effect after November 2, 2001.   

Q4.      What is a guaranty association? 

A guaranty association is an association of all insurers licensed to write certain types of insurance in a state.  Subject to statutory limits, a guaranty association assumes the policyholder obligations of licensed insolvent insurers in that state for residents and/or property of that state.  The association obtains funds to meet its obligations by assessing the member companies. 

Q5.      Since my company has been placed into liquidation, will my claims be paid? 

All valid claims incurred prior to the termination of your coverage will be paid subject to policy limits and the limits of your guaranty association.  Until advised to the contrary, claims should be submitted as they have been in the past.  Valid claims which are not covered by a guaranty association or portions of claims which exceed the statutory obligations of the guaranty association become claims against the estate of the company and will be paid at some time in the future to the extent funds are available. 

Q6.      Do I need to resubmit my claims to the guaranty association? 

No.  If you have a claim pending with Reliance, it is not necessary for you to do anything else.  The claims which are currently pending with Reliance will be transferred to the guaranty associations as quickly as is possible. 

Q7.      Will my claims be paid in full? 

All valid policyholder claims are subject to certain statutory limits contained in the law creating the guaranty association.  In no case will benefits exceed the applicable policy limits. 

Q8.      How long will it take for my claims to be paid by the guaranty association? 

When a company is placed into liquidation, the guaranty associations are typically activated to pay claims as soon as the Court orders the liquidation.  Claim payments usually begin within 60 to 90 days after the Court order is issued.  However, the waiting period may vary based on the number of claims received, and the time claims are submitted.  (Note to Staff:  Worker’s Compensation indemnity payments are exceptions under the Order . . . see attached pages for additional information). 

Q9.      I have questions about what is and is not covered by the guaranty association?              Who can answer these questions for me? 

You can address your questions about the guaranty association’s responsibilities to the guaranty association in the state in which you reside.  Lists of guaranty associations are attached.  Note that different guaranty associations handle different types of business.  Property and casualty claims are handled by one type of guaranty association, and life and health claims are handled by another.  Please make sure you are looking at the correct listing for the type of policy you hold.  Some states have separate organizations that handle worker’s compensation claims.  These are shown by state on the property and casualty listing. 

Q10.    I believe I have a claim against Reliance but I am not a policyholder.      How do I make a claim? 

Claims filed against Reliance by general creditors, stockholders, trade creditors, governmental agencies, reinsurers, agents, attorneys, employees and other persons interested in the affairs of Reliance are handled by the Statutory Liquidator.  To file a claim for monies owed to you by Reliance, you must file a proof of claim form with the Statutory Liquidator.  You will receive additional information regarding how to perfect your claim against Reliance in 30 to 60 days.  . If you are a trade creditor who provided  goods or services at the request of the Rehabilitator after May 29, 2001, the Liquidator will honor the commitments of the Rehabilitator, and no claim filing is necessary. 

Q11.    How do I know if you have a record of my name and address so that I will be sent a proof of claim package? 

Reliance has a record of all creditors with whom it has done business in the past. However, if you believe Reliance may not be aware of your claim or if you need to update your address, please send a letter containing the pertinent information to Reliance Insurance Company (In Liquidation), 5 Hanover Square, New York City, NY  10004.

Q12.    I am an attorney representing Reliance as a party in litigation.  What should I do and who is going to pay my fees? 

An information letter is being mailed to all outside counsel representing Reliance or its insureds.  If you have not received your letter by October 22, 2001, please call the Reliance Litigation Clearinghouse at (215) 569-5566, email reliance@blankrome.com or fax your request to (215) 832-5566.

Worker’s Compensation Questions

 Q 1      I have a workers compensation claim claim.  How will the liquidation of Reliance affect my payments?  

            The Commonwealth Court has approved the continuation of payments for workers compensation indemnity (lost time) because a 60 to 90 day delay in payments could create a significant hardship on Reliance insureds.

 Once a smooth transition can be assured, the appropriate guaranty association will assume the responsibility for continuation of payments.  The Statutory Liquidator will provide additional information about the proof of claim process to you in the next 30 to 60 days.

Q 2      Will my claims be paid in full?

            Yes.  Under guaranty association statutes in every state, claims for workers compensation are covered 100 percent.  A list of property and casualty/worker’s compensation guaranty association contacts follows.

Q3       I have a new worker’s compensation claim.  How do I report it?

            Until you are advised to the contrary, you should continue to report claims as you have in the past.

Accident & Health Policy Questions

Q 1      I have a health insurance policy.  What impact does the liquidation have on this policy?

By Order of the Commonwealth Court of Pennsylvania, all policies or contracts of insurance in effect as of October 3, 2001, cancel 30 days from the date of liquidation, on the normal expiration of the policy contract or the date replacement coverage has been obtained, whichever is less.  Under no circumstances will any health policy be in effect after midnight on November 2, 2001.

 Q 2      I have a new claim.  How do I report it?

             Until you are advised to the contrary, you should continue to report new claims as you have in the past. 

Q  2     Will my claims be paid  in full? 

            Generally, guaranty associations cover up to $100,000 or the policy limits provided in your contract language for medical claim payments.  Any questions regarding the limitations should be directed to the responsible life and health guaranty association (listing attached). 

Questions Concerning Pending Litigation

 Q 1      I am an attorney and represent an insured of Reliance in pending litigation.  What do I do now that the company is in liquidation. 

 The Liquidation Order provides for an immediate stay of 90 days for all Pennsylvania proceedings in which Reliance is obligated to defend pursuant to an insurance policy provision.  This provision in the order implements the Pennsylvania statutory provision found in the Pennsylvania Property and Casualty Insurance Guaranty Association Act. Most other state guaranty association statutes have similar provisions which will provide the basis for a stay of litigation in their respective states.  As of the date of the Liquidation Order, the Liquidator can no longer pay policyholder claims, claim judgments or litigation costs related to policyholder claims except through the liquidation claims process.  Any further litigation costs will be paid by either the guaranty association (if it relates to a covered claim and meets other statutory requirements) or the insured (if it does not relate to a covered claim). The Liquidator is in the process of working with the state guaranty associations to transfer claim files to the appropriate guaranty association.  Once that process is complete, you will be contacted by the appropriate guaranty association regarding future handling of your files.

 Q 2      I am an attorney and represent an insured of Reliance in pending litigation.  Who is going to pay my fees, both outstanding and future?

 As of the date of the Liquidation Order, the Liquidator can no longer pay policyholder litigation costs.  Fees for authorized services rendered through October 3, 2001 will be paid by the Rehabilitator as provided in the Liquidation Order.  You should provide an invoice for fees through that date to your regular Reliance litigation contact.  Fees for services rendered on or after October 4 will be the responsibility of either the insured or your state guaranty association.

Q 3      I am an attorney and represent Reliance as a party in a non-claims matter.  What do I do now that the company is in liquidation?   

            If Reliance is the plaintiff:

            The Liquidation Order does not provide for a stay in cases where Reliance is a plaintiff.  If you believe a case that you are handling has special circumstances, such that you would recommend seeking a stay, please discuss the matter with your usual litigation contact person in the legal department of Reliance. 

 If Reliance is defendant:

 The Liquidation Order provides for an indefinite stay of all pending actions (including arbitrations and mediations) against Reliance. Please provide notice of the Order to your court and opposing counsel.  If an indefinite stay has not been effectuated in a particular action, you should first contact opposing counsel and ask them if they will now sign an agreed stipulation staying the action indefinitely.  If they will not agree, please prepare and file on behalf of Reliance the necessary notice, petition or pleadings to stay any further action.  Generally, the claims of plaintiffs in actions against Reliance (which do not involve policyholder claims) will be dealt with as claims pursuant to the applicable statutory provisions.

Q 4      I am an attorney and represent Reliance as a party in a non-claims matter.  Who is going to pay my fees, both outstanding and future?

             As indicated in the Liquidation Order, the Liquidator is authorized to pay the costs of services provided to and approved by Reliance, in rehabilitation.  Consequently, there should be no disruption in the payment of pending invoices for services approved and rendered during the rehabilitation. Please provide to your usual Reliance legal contact an invoice for any unbilled amounts and copies of any pending invoices for services performed through October 3, 2001, the date of the Liquidation Order, and begin a new invoice period on October 4, 2001.

Click here for a Roster of Guaranty Funds