RANDALL P. BORCHERDING
State Bar No. 77186
P.O. Box 70550
RANDALL P. BORCHERDING
State Bar No. 77186
P.O. Box 70550
Within 120 days of the issuance of an order directing the winding up and liquidation of the business of an insolvent insurer under Section 1016, the commissioner shall make application to the court for approval of a proposal to disburse the insurer's assets, from time to time as such assets become available, to the California Insurance Guarantee Association, or the California Life and Health Insurance Guarantee Association, and to any entity or person performing a similar function in another state.
On January 30, 2006, this Court approved the Commissioner's request, pursuant to Insurance Code section 1035.5, to make an early distribution of $5,000,000 to the California Insurance Guarantee Association and other state insurance guaranty associations or funds. At the time that the Commissioner secured the approval of the Court, the Company had insufficient assets to make any additional distributions of assets to other state guaranty funds pursuant to Insurance Code section 1035.5
The Commissioner has concluded that the estate of Great States now possesses sufficient funds to request approval to make a second early access distribution to the California Insurance Guarantee Association and other state insurance guaranty associations or funds. Specifically, as of May 31, 2006, net available assets of the estate of Great States total $9,780,118, from which the Commissioner now proposes to make a second early access distribution in the approximate amount of $5,000,000. (See attached Exhibit A ("Great States 3rd Quarter 2006 Early Access Distribution").)
As of May 31, 2006, a Total of seven (7) guaranty funds have paid a total of $24,913,164 in losses and loss adjustment expenses on behalf of Great States. Specifically, the Special Fund of the Industrial Commission of Arizona has paid $3,205,043, the California Insurance Guarantee Association has paid $10,956,190, the Colorado Insurance Guaranty Association has paid $9,841,366, The Illinois Insurance Guaranty Fund has paid $304,818, the Nevada Insurance Guaranty Association has paid $492,914, the New Mexico Property & Casualty Insurance Guaranty Association has paid $3,374 and the Texas Property and Casualty Insurance Guaranty Association has paid $109,460. (See attached Exhibit B ("Great States 3rd quarter 2006 Early Access Distribution Detail of individual IGA distribution amounts.").)
The Commissioner's proposal with respect to Great States is to distribute and pay 40.3463 percent of the paid losses and loss adjustment expenses of each of the above-referenced guaranty funds, as of March 31, 2006, for a total payment to all funds of approximately $5,000,000. (See attached Exhibit C ("Great States 3rd quarter 2006 Early Access Distribution Analysis of cumulative distribution percentage").) Subtracting the total proposed distribution of $5,000,000 from Great States' total net available assets of $9,780,118 would leave Great States HIH America with remaining net assets in the approximate amount of $4,780,118.
In calculating the amount of payment to each guaranty fund, the Commissioner has offset from the proposed distribution the amount of any statutory deposit held by Great States in that particular state, pursuant to Insurance Code section 1035.5, subdivision (d). The Commissioner proposes to distribute and pay each guaranty fund the following amount:
| 1. |
Special Fund of the Industrial Commission of Arizona |
$728,560 |
| 2. |
California Insurance Guarantee Association |
$2,285,681 |
| 3. |
Colorado Insurance Guaranty Association |
$1,823,401 |
| 4. |
Illinois Insurance Guaranty Fund |
$54,180 |
| 5. |
Nevada Insurance Guaranty Association |
$87,613 |
| 6. |
New Mexico Property & Casualty Ins. Guaranty Assn. |
$0 |
| 7. |
Texas Property & Casualty Ins. Guaranty Association |
$20,565 |
(See attached Exhibit B ("Great States 3rd quarter 2006 Early Access Distribution Detail of individual IGA distribution amounts").)
There are no statutory deposits on deposit in the states of Arizona, California, Colorado, Nevada or Texas. Accordingly, the Commissioner will distribute the above-referenced amounts without applying an offset of a statutory deposit as set forth in Insurance Code section 1035.5, subdivision (d). Arizona and California have both recovered amounts pursuant to their workers' compensation surety bonds. Specifically, Arizona has reported recoveries of $2,378,960 and California has reported recoveries of $3,341,959. Such amounts have been credited against each state's total losses.
In distributing $54,180 to the Illinois Insurance Guaranty Fund, the Commissioner has credited a previous early access distribution of $18,620 and has offset statutory deposits of Great Stales on deposit with the State of Illinois in the total amount of $50,183 for a total credit in the amount of $68,803. (See attached Exhibit B ("Great States 3rd quarter 2006 Early Access Distribution Detail of individual IGA distribution amounts").)
No distribution will be made to the New Mexico Property & Casualty Insurance Guaranty Association, which has paid $3,374 in losses and loss adjustment expenses on behalf of Great States, because as of March 31, 2006, Great States had $210,000 on deposit with the State of New Mexico to offset any payments made by the New Mexico Property & Casualty Insurance Guaranty Association on behalf of Great States claims. After offsetting the payments made by the New Mexico Property & Casualty Insurance Guaranty Association against the statutory deposits, Great States still has $208,639 in statutory deposits available to cover payments made by the New Mexico Property & Casualty Insurance Guaranty Association. (See attached Exhibit B ("Great States 3rd quarter 2006 Early Access Distribution Detail of individual IGA distribution amounts").)
In accordance with Insurance Code section 1035.5, subdivision (b)(l), the Commissioner has reserved certain amounts of the estate's assets for the payment of expenses of administration and the payment of claims of secured creditors and claims falling within the priorities established in Insurance Code section 1033, subdivisions (a)(l) and (a)(2). Subtracting the total proposed distribution of approximately $5,000,000 from available net assets of $9,780,118 leaves remaining net assets in the amount of approximately $4.7 million for the payment of expenses of administration, and all other unrecorded liabilities and contingencies. If closure of the Great States estate is not imminent, the Commissioner will seek approval of an additional early access distribution when such liabilities and contingencies become known and are quantified.
In accordance with Insurance Code section 1035.5, subdivision (b)(4), the Commissioner has secured from the guaranty funds receiving a distribution an agreement to return the distributed assets, as required, to pay claims of secured creditors and claims falling within the priorities established in Insurance Code section 1033, subdivisions (a)(l) and (a)(2).
As detailed above, the Commissioner has complied with the requirements of Insurance Code section 1035.5 for disbursement of assets to insurance guaranty associations and, accordingly, this Court should approve the instant application.
WHEREFORE, the Commissioner respectfully requests, based on this Application, that this Court issue an Order:
- Approving the Commissioner's proposal to disburse a total of approximately $5,000,000 of the net assets of the estate of Great States to the six (6) state guaranty associations and funds set forth above and in the amounts set forth above.
- Authorizing the Commissioner to take any and all action necessary to accomplish the purposes of the Order requested herein.
Dated:
9/29/2006
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BILL LOCKYER
Attorney General
RANDALL P. BORCHERDING
Supervising Deputy Attorney General
DAVID LEW
Deputy Attorney General
David Lew
DAVID LEW
Attorneys for Applicant Insurance Commissioner
of the State of California
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VERIFICATION
I, Mohsen Sultan, state that I am an Estate Trust Officer for the California Insurance Commissioner's Conservation & Liquidation Office. My duties include managing and supervising for the Conservation & Liquidation Office the administration of insurance companies that have been conserved and liquidated by the California Insurance Commissioner. Since April 2005, I have been managing the affairs of Great States Insurance Company.
I have read the VERIFIED APPLICATION FOR ORDER AUTHORIZING PROPOSAL FOR SECOND EARLY DISTRIBUTION OF ASSETS TO STATE INSURANCE GUARANTY ASSOCIATIONS OR FUNDS and know the contents thereof; If called upon to testify, I could competently testify to matters contained in the Verified Application as they are personally known to me, except as to the matters which are therein stated upon information and belief and as to those matters, I believe them to be true. The statements contained in the Verified Application are based upon information that has been assembled by authorized employees of the Conservation & Liquidation Office from the official records maintained there under my supervision. I am informed and believe that the statements based upon those records are true. As to those matters that are within my own personal knowledge, the statements are true.
I declare under penalty of perjury that the foregoing is true and correct.
Executed on September 29th, 2006 in San Francisco, California.
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Mohsen Sultan
Mohsen Sultan
Estate Trust Officer
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MEMORANDUM OF POINTS AND AUTHORITIES
Insurance Code section 1035.5 provides as follows:
Notwithstanding the provisions of Article 14 (commencing with Section 1010), with regard only to those insurers subject to this article:
- Within 120 days of the issuance of an order directing the winding up and liquidation of the business of an insolvent insurer under Section 1016, the commissioner shall make application to the court for approval of a proposal to disburse the insurer's assets, from time to time as such assets become available, to the California Insurance Guarantee Association, or the California Life and Health Insurance Guarantee Association, and to any entity or person performing a similar function in another state.
- The proposal shall at least include the following provisions for:
- Reserving amounts for the payment of expenses of administration and the payment of claims of secured creditors (to the extent of the value of the security held) and claims falling within the priorities established in paragraphs (1) to (4), inclusive, of subdivision (a) of Section 1033.
- Disbursement of the assets marshaled to date and subsequent disbursements of assets as they become available.
- Equitable allocation of disbursements to each of the associations entitled thereto.
- The securing by the commissioner from each of the associations entitled to disbursements pursuant to this section of an agreement to return to the commissioner such assets previously disbursed as may be required to pay claims of secured creditors and claims falling within the priorities established in paragraphs (1) to (5), inclusive, of subdivision (a) of Section 1033 in accordance with the priorities. No bond shall be required of any association.
- A full report to be made by the association to the commissioner accounting for all assets so disbursed to the association, all disbursements made therefrom, any interest earned by the association on the assets, and any other matter as the court may direct.
- The commissioner's proposal shall provide for disbursements to the associations in amounts estimated at least equal to the claim payments made or to be made by the associations for which such associations could assert a claim against the commissioner, and shall further provide that if the assets available for disbursement from time to time do not equal or exceed the amount of the claim payments made or to be made by the associations, then disbursements shall be in the amount of available assets. The reserves of the insolvent insurer on the date of the order of liquidation shall be used for purposes of determining the pro rata allocation of funds among eligible associations.
- The commissioner shall offset the amount disbursed to any entity or person performing a function in any other state similar to that function performed by the California Insurance Guarantee Association, or the California Life and Health Insurance Guarantee Association, by the amount of any statutory deposit, premiums, or any other asset of the insolvent insurer held in that state.
- Notice of such application shall be given to the associations in and to the commissioners of insurance of each of the states. Any such notice shall be deemed to have been given when deposited in the United States certified mails, first-class postage prepaid, at least 30 days prior to submission of such application to the court. Action on the application may be taken by the court provided the above required notice has been given and provided further that the commissioner's proposal complies with paragraphs (1) and (4) of subdivision (b).
The proposal for which the Commissioner seeks court approval in this application fully satisfies the statutory provisions of section 1035.5. First, the Commissioner will retain general assets of Great States in the amount of approximately $4.7 million to fund the estate's general administrative expenses and claims of secured creditors, pursuant to Insurance Code section 1035.5, subdivision (b)(l). Second, the Commissioner proposes to disburse, on a pro rata basis, to each of the six (6) guaranty funds eligible for a distribution, funds which the Commissioner has determined to be the "available assets" of the estate, pursuant to section 1035.5, subdivisions (b)(2) & (c). Third, the proposal provides for an equitable allocation of certain assets to the state insurance guaranty funds, pursuant to section 1035.5, subdivision (b)(3). Fourth, disbursement of the assets will be subject to an agreement by each of the state insurance guaranty funds to, if necessary, return assets previously disbursed to pay claims of secured creditors, pursuant to section 1035.5, subdivision (b)(4). Fifth, disbursements of the assets will also be subject to an agreement by each of the state insurance guaranty funds to make a full report to the Commissioner accounting for all assets disbursed to each fund, all disbursements made therefrom, and any interest earned by the guaranty fund on the assets, as required by section 1035.5, subdivision (b)(5). Finally, the Commissioner will offset the amount disbursed to any entity or person performing a function in any other state similar to that function performed by the California Insurance Guarantee Association by the amount of any statutory deposit, premiums, or any other asset that Great States held in that state, pursuant to section 1035, subdivision (d). Notice of this application has been given in accordance with the provisions of section 1035, subdivision (e).
Furthermore, apart from satisfying the statutory provisions of the regulation of workers' compensation insurance provided for under the Insurance Code, the Commissioner's proposal falls within the ambit of his broad statutory discretion. The California Legislature has afforded to the Commissioner, acting in his capacity as the court-appointed liquidator of an insolvent insurer, substantial discretion under the Insurance Code to fashion appropriate procedures necessary to carry out his statutory duties. (Calfarm Ins. Co. v. Deukmejian (1989) 48 Cal.3d 805, 824-825; Carpenter v. Pacific Mut. Life Ins. Co. (1937) 10 Cal.2d 307, 329.) As the court-appointed liquidator of Great States, the Commissioner has the express authority to, among other things, take such actions as he deems necessary to "carry on and conduct the business and affairs" of the Company. (Ins. Code, § 1037, subd. (a).) Section 1037, subdivisions (a) and (b) provide, in pertinent part, as follows:
Upon taking possession of the property and business of any person in any proceeding under this article, the commissioner, exclusively and except as otherwise expressly provided by this article, either as conservator or liquidator... [s]hall have authority ... to carry on and conduct the business and affairs of that person or so much thereof as to him ... may seem appropriate ... [and also] [s]hall have authority to compound, compromise or in any other manner negotiate settlements of claims against that person upon such terms and conditions as the commissioner shall deem to be most advantageous to the estate of the person being administered ... or otherwise dealt with under this article.
