In addition to the liquidation order by the Pennsylvania court, several large policyholders were granted permission to collect claims directly from the reinsurers of Legion and Villanova. These policyholders have claims that greatly exceed the $300,000 maximum limit generally available from most guaranty funds.

Terry Cummings, a partner in the New York law firm Ohrenstein & Brown LLP, which represented Legion malpractice insurance policyholder Psychiatrists' Purchasing Group Inc. (PPG), praised the decision by Judge Hannah Leavitt of the Pennsylvania Commonwealth Court.

PPG is one of the policyholders that will be permitted to approach reinsurers directly for payment. Others include American Airlines Inc., Pulte Homes Inc. and Rural Metro Corporation. By far the largest claims are those of American Airlines, which total $140 million and include losses stemming from the 9/11 terrorist attacks and the crash of an airplane in Queens, N.Y.

The major reinsurers involved include Transatlantic Reinsurance Company, Lloyds of London, Swiss Reinsurance America Corporation and American Reinsurance Company.

“PPG was the intended beneficiary of the reinsurance,” said Mr. Cummings. “Legion was never intended to be anything more than a front. Legion's business plan was to be a fronting company and not to take risks of its own.”

The Pennsylvania Insurance Department, which was criticized in the judge's written opinion, was given until July 15 to draft a new liquidation order. Among other criticisms, the judge indicated that the Department did not do enough to try to rehabilitate Legion or collect the $310 million in reinsurance. She called the Department's attitude toward Legion a “Kevorkian view,” a reference to the Michigan doctor who assisted people to commit suicide.

“The judge justifiably excoriated the Department for not following up on deals to rehabilitate Legion,” said Mr. Cummings.

Reproduced from National Underwriter Edition, July 7, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.