Magazine article Risk Management

Policyholders Win Direct Access to Reinsurance

Magazine article Risk Management

Policyholders Win Direct Access to Reinsurance

Article excerpt

The Pennsylvania Commonwealth Court set a potentially far-reaching precedent at the end of June when it allowed policyholders with third-party beneficiary rights in reinsurance contracts to directly access reinsurance proceeds in the event that the fronting company that facilitated the contract becomes insolvent.

The case involved Legion Insurance Company and Villanova Insurance Company, both of which were placed in liquidation by the Commonwealth of Pennsylvania near the end of 2002.

During the proceedings, four of these companies' policyholders--Pulte Homes, Inc.; Psychiatrists' Purchasing Group, Inc.; Rural/Metro Corporation; and American Airlines, Inc.--sought direct access to reinsurance funds facilitated by the carriers to pay outstanding claims.

In the case of Pulte Homes--which serves as a good example of the situation faced by all four of the case's plaintiffs--the firm needed certificates of insurance in order to satisfy Pennsylvania state and regulatory financial responsibility requirements. Pulte wanted to purchase reinsurance that would cover any losses that exceeded its self-insured retention. Since it could not go straight to the reinsurer, Pulte used Legion as a "fronting" or "pass through" company that acted as a middleman between Puke and its reinsurer in exchange for an annual fronting fee. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.