|Three Insurers Cover $85M Reliance
By Daniel Hays
National Underwriter News
Feb. 25, 2005
Three insurers will pay the cost of an $85 million agreement settling an action against the former directors and officers of the Reliance Insurance Group by the Pennsylvania Insurance Department, officials said yesterday.
The carriers involved are Lloyd's Underwriters, which held the primary layer of liability coverage, Greenwich Insurance Company and Clarendon Insurance Company, said a department spokeswoman, Melissa Fox.
Pennsylvania Insurance Commissioner Diane Koken, in her role as statutory liquidator for Reliance Insurance Company, announced that the goal of the settlement was to maximize the recovery for Reliance policyholders.
The department had sued Reliance's management for fiscal misconduct, including breach of fiduciary duties and professional negligence.
According to the complaint filed in 2002, Reliance's "ultimate" parent company was Reliance Group Holdings, Inc., which owned 100 percent of Reliance Financial Services Corp., which in turn owned 100 percent of Reliance Insurance. The suit named Saul Steinberg, formerly Reliance's chief executive, as RGH's largest individual shareholder.
From 1998 to the first half of 2000, it was charged, the Reliance Insurance directors, including Mr. Steinberg, "caused Reliance to pay its parent companies over $500 million in cash." The parent companies in turn paid out most of that amount to its shareholders, including Mr. Steinberg and his family, "while also failing to cause Reliance to collect (or RGH to pay) another $200 million owed to Reliance from RGH," the complaint said.
In addition to the monetary agreement from defendants, Mr. Steinberg agreed to stay out of the insurance business in Pennsylvania for next 15 years, according to Commissioner Koken.
"From the day we took over the Reliance Insurance Company, we committed ourselves to taking any and all steps necessary to protect and recover the assets of the company for the benefit of all policyholders and to hold responsible parties accountable for their actions, said Commissioner Koken.
"That was the reason we took action against Reliance's former officers and directors, he added. We have fought long and hard in this case, and we are pleased with this settlement, as we believe it is the largest one ever for the department."
She said $34 million from the settlement will benefit the creditors of Reliance parent companies, Reliance Group Holdings Inc. and Reliance Financial Services Corp.
The remaining settlement proceeds of more than $51 million is being reserved for the benefit of Reliance's policyholders. This $51 million, when combined with the $45 million previously recovered from Reliance's parent companies, results in a recovery of nearly $100 million for Reliance's policyholders from litigation brought by the department.
"Today, the Pennsylvania Insurance Department has closed a large chapter in the story of the liquidation of the Reliance Insurance Company, Ms. Koken said.
She said the President Judge of the Commonwealth Court, Judge James Gardner Colins, had a critical role in establishing and overseeing the mediation that resulted in the settlement.
"We also stand ready to assist law enforcement agencies in their continuing efforts and investigations into the collapse of the Reliance companies," she said.
A copy of the settlement agreement can be found at the Reliance Documents website, http://www.reliancedocuments.com/. Policyholders with questions in the Reliance liquidation estate can call 215-864-4500.
Reliance Insurance Company was licensed in Pennsylvania to write in all 50 states. The carrier's business consisted primarily of workers' compensation, commercial auto, commercial liability and personal auto coverage. The company stopped writing most new or renewal business in June 2000.
States with the largest number of Reliance policyholders included California, New York, Florida, Pennsylvania, Illinois and Texas.
The Pennsylvania Insurance Department took statutory control of the company on May 29, 2001, under an order of rehabilitation, followed by an order of liquidation in early October of that same year.
According to a fourth quarter status report on the company, an unedited projection of Reliance liabilities is in excess them of $3 billion.
Regulators said it is too early to tell whether insurance guaranty funds would be reimbursed fully because the liquidator is still in the process of marshalling the company's assets.