The court found that these policyholders, which include American Airlines Inc., Pulte Homes Inc., Rural Metro Corporation and the Psychiatrists' Purchasing Group, are third-party beneficiaries of the reinsurance contracts because Legion and Villanova operated solely as fronting companies and assumed no direct risk of loss.

Reinsurers involved include Transatlantic Reinsurance Company, Lloyds of London, Swiss Reinsurance America Corporation and American Reinsurance Company.

Commissioner Koken's July 3 motion contends that no Pennsylvania law grants policyholders the right to recover directly from reinsurers. There is no reason to place certain policyholders in front of others and give them preferential treatment in obtaining their share of the Legion estate, according to the motion.

In her ruling, Judge Leavitt had criticized the Insurance Department's handling of Legion and Villanova, noting that more should have been done to attempt to rehabilitate the companies and collect reinsurance.

But Pamela Woldow, the department's chief counsel, said it was the judge's delay in handing down her rulings that caused most of the problems in this case.

Reproduced from National Underwriter Edition, July 14, 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.