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After nearly a decade of supervision by the Illinois Department
of Insurance, Lumbermens Mutual Casualty Company and its sister
company, American Manufacturers Mutual Insurance Company
(collectively, "Lumbermens"), have been placed in
rehabilitation by order of the Cook County Illinois Chancery Court
("Order") on motion of the State of Illinois Director of
Insurance. See
Lumbermens order of rehabilitation 7-2-12 . Rehabilitation
is the first step to what will soon be the complete liquidation of
the insurers.
Since 2003, Lumbermens and American Manufacturers have been
operating under the supervision of the Director of Insurance
through a series of corrective orders and run-off plans. Throughout
that time, the insurers have been reporting to the Director of
Insurance and the Lumbermens' Working Groups of the National
Association of Insurance Commissioners (NAIC) and the National
Conference of Insurance Guaranty Funds (NCIGF).
Given Lumbermens' limited and steadily declining cash
reserves, the Director of Insurance, as the Rehabilitator of the
insurers, will assume possession and control of all of the property
of the insurers with the intent to marshal and liquidate their
assets, business, and affairs. The Order directs the Rehabilitator
to wind down and terminate the business and affairs of the
insurers.
During the wind down and termination process, the Rehabilitator
has the authority to act to resolve direct and reinsurance claims
on behalf of the insurers. The Order specifically precludes
reinsurers from resolving claims directly with insureds without the
consent of the Rehabilitator except where the reinsurance agreement
expressly provides for payment to or on behalf of an insured on
behalf of Lumbermens or American Manufacturers.
What does this mean? For the very near future, claims will
continue to be handled by the third party administrator that has
been handling claims. However, since the ultimate plan is to
liquidate the insurers, those claims will soon be shifted to the
various state insurance guaranty funds. Whether and to what degree
a guaranty fund will pay such claims will depend on the rules
governing those particular funds. Policyholders will be directed to
the guaranty fund of the state in which the policyholder resides.
The rules governing the operations of the state insurance guaranty
funds vary from state to state and limit the amount of recovery
available to insureds. The guaranty funds generally cap the amount
of any claims that the fund must pay (Alabama, for example, limits
claims to $150,000), and many limit the ability of high net worth
insureds to access the fund.
Policyholders who have unresolved coverage claims with
Lumbermens or who have historic Lumbermens insurance should
consider consulting coverage counsel for advice and guidance as
they work their way through this process. Once claims are
transferred to the guaranty associations, policyholders should take
prompt action to ensure that all claim formalities and deadlines
are met. Guaranty associations invariably impose a deadline on when
a claim can be filed. Also, because claims not covered by the
guaranty associations may be eligible for reimbursement from the
estates of the insurers, policyholders should take appropriate
actions to preserve those claims through the estate liquidation
process.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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