The Louisiana Insurance Guaranty Association (LIGA) held its Sept. 24 quarterly board meeting in person for the first time since the start of the coronavirus pandemic. During the meeting, two new board members were introduced, a new liquidation was brought to the board’s attention and the board was updated on claims and investments.
In June, the membership voted for Jennifer Wise, Zurich, to replace the retiring board member Tom McCormick, retired CFO of LAMMICO. While Zurich’s presence on the board is new, Zurich has been a significant contributor on many guaranty associations and the National Conference of Insurance Guaranty Funds, LIGA Executive Director John Wells said. In July, LIGA received notice of the Republican Speaker of the House Clay Schexnayder’s appointment of Cullen Clark, The Lincoln Agency, Ruston, to the board, replacing veteran board member William D. Hughs III, Arthur J. Gallagher, New Orleans.
Wells informed the board that American Service Insurance Company (ASIC), an Illinois-domiciled commercial auto insurer, was placed in liquidation on Aug. 11 by the Illinois courts upon the petition of the director of the Illinois Department of Insurance and the consent of ASIC’s board of directors.
ASIC is a sister company to LIGA’s next most recent insolvency, Gateway Insurance Company. Gateway, also an Illinois-domiciled company, was placed in liquidation on June 8, by the Illinois courts. Like Gateway, ASIC was a commercial auto insurer covering various taxi, livery, ride-share, and similar vehicles for hire.
According to Atlas Financial Holdings Inc.’s website, ASIC and Gateway were both owned at one time by Atlas Financial. Atlas Financial announced on Jan. 22 its intent to sell Gateway and announced the closing of the sale to Buckle Corp. on June 17.
Atlas Financial, which is headquartered in Schaumburg, Illinois, described Buckle as a provider of “technology-driven financial products and services to the shared economy.”
As Atlas Financial described the transaction: “The amount of $4.2 million, representing a portion of the purchase price, was paid to the statutory liquidator of Gateway at closing by Buckle. In addition, up to $500,000 may be paid as additional purchase price, depending on how many insurance licenses of Gateway are in full force and effect without restriction at the end of 2020. . Buckle plans to recapitalize Gateway to support go-forward business.”
Atlas Financial previously announced that its strategic focus includes transitioning business previously written by Gateway as well as American Country Insurance Company and ASIC, two of its wholly owned indirect subsidiaries, which at the time of the announcement were in rehabilitation, to alternative markets through Atlas’s wholly owned managing general agency, Anchor Group Management Inc., “to leverage the team, distribution system and other resources aligned under this business unit.”
On Aug. 4, Atlas Financial announced the execution of a non-binding letter of intent among the company’s subsidiary, American Insurance Acquisition Inc., Buckle Corp. and the statutory rehabilitator of the company’s indirect subsidiaries, American Country and ASIC, for Buckle to acquire the stock, charters and state licenses of American Country and ASIC in a collaborative transaction.
According to Atlas Financial, Buckle was to pay up to $5.2 million, and the rehabilitator agreed to pay up to $25,000 out of the proceeds of the transaction for American Insurance Acquisition’s legal fees. The closing was expected to occur during the second half of 2020. The Buckle transaction did not include any transfer of American Country’s or ASIC’s insured obligations; such obligations were to remain in the receivership estates of the two insurers.
In connection with the Buckle transaction, the boards of directors of American Insurance Acquisition and ASIC consented to American Country and ASIC being placed in liquidation. All remaining inforce policies of American Country and ASIC were to be canceled with 30-days’ notice following the date of liquidation.
LIGA recently received its first batch of claims data, and claims examiners are working with the receiver on getting additional policies and documents.
Wells is a member of the committee working with the Illinois Office of the Special Deputy to get data and documents to the impacted guaranty funds. He has been assisting with the testing of the data which has been very problematic, according to Wells.
Wells told the board that LIGA does not expect any significant changes to staff, operations, or finances because of the ASIC insolvency.
LIGA reaches out
According to Wells, the effects of term limits and other changes at the capital have renewed the need for LIGA to become more proactive in legislative outreach concerning LIGA law. Wells told the board that LIGA law creates a delicately balanced public-private partnership. This ecosystem provides for checks and balances in many forms. Some of these are necessary to ensure that both the private insurers and the state have input while others help protect the solvency of the fund or minimize the effect on the state budget.
Wells also told the board that he, LIGA General Counsel Stephanie Laborde, Milling, Benson, Woodard LLP, and LIGA Claims Manager Diedre Arceneaux have met with Baton Rouge attorney, Tom Clark, Breazeale, Sachse and Wilson, to begin discussing LIGA’s legislative outreach plans for 2021.
The plan’s goal is to educate key legislative members and their staffs, key Department of Insurance staff, as well as the trades and industry about the LIGA law.
Wells reported that as of July 30, LIGA’s investment account at Wells Fargo Advisors had a value of $147,521,953 on a cost basis, with a market value of $154,889,639. LIGA’s holdings consist of 16.5 percent corporate bonds and 83.5 percent U.S. Treasury/agency investments, and LIGA’s current annual yield is 2.01 percent.
In addition, Wells reported to the board that LIGA has entered into a Common Interest/Joint Defense Agreement with a majority of guaranty funds regarding a resolution of the primacy of guaranty fund exclusions as “payors of last resort” over Medicare exclusions as a “secondary payor.” While the California Insurance Guarantee Association won the first court battle, the Centers for Medicare and Medicaid Services is posturing itself in opposition to other guaranty fund associations recognizing the application of CIGA v. Azar.
CIGA v. Azar
The California Lawyers Association wrote in a bulletin that the Ninth Circuit reversed a lower court ruling when the Ninth Circuit held that the Medicare Act does not preempt California law governing insolvent insurers.
California law prohibits CIGA from reimbursing state and federal agencies, such as Medicare. In contrast, the Medicare Act contains a Secondary Payer Provision that requires a primary insurer to reimburse Medicare for any medical care included under the beneficiary’s policy with a primary insurer, the California Lawyers Association bulletin states.
In CIGA v. Azar, CIGA administered several workers’ comp claims for individuals whose insurers were insolvent. CIGA notified the Center for Medicare Services that some of the beneficiaries were entitled to medical care under Medicare, and Medicare paid for those expenses. CMS contended CIGA was the primary insurer and was required to reimburse Medicare for those expenses. CIGA sought a declaratory judgment to the contrary, but the district court ruled that federal law preempted California law, according to the bulletin which was prepared by H. Thomas Watson and Peder K Batalden, Horvitz and Levy LLP.
The Ninth Circuit did not agree with the district court, holding that insurance regulation is a field traditionally regulated by the states, and nothing in the Medicare Act suggests that Congress intended to interfere with state regulation of insolvent insurers. Specifically, the bulletin states, the court determined that the Secondary Payer Provision does not apply to CIGA, so it was not obligated to reimburse Medicare for the medical expenses at issue. CIGA is an insurer of last resort that pays covered claims when there is no other insurer available, the bulletin states.
Arceneaux reported to the board that LIGA’s claims trend shows a decrease in the number of new environmental claims received compared to 2019 and that LIGA’s loss payments as well as expense payments in all lines of business are well below budget projections for 2020.
While not all reasons point directly to coronavirus, the temporary closing and limited functioning of the courts, the restrictive travel and activities of LIGA’s defense counsel, and the limited medical treatment sought by LIGA’s workers’ compensation claimants are some of the coronavirus related impacts that have affected LIGA’s year-to-date claim payments, Arceneaux told the board.
Arceneaux informed the board that ASIC and Gateway were owned by the same holding company and their claims management company used the same defense firms in Louisiana for both carriers. LIGA is currently in the process of adding to the LIGA approved attorney listing where needed.
In addition, LIGA is working with Laborde to develop a training/refresher course to be presented via Zoom to all newly approved defense attorneys as well as LIGA’s existing defense attorneys on LIGA claims handling guidelines and to discuss changes to the LIGA statute since LIGA received its last major auto insolvency.
Laborde told board members that Sedgwick recently advised LIGA that its 2020 comprehensive claims audit, which was to be conducted by Ira Ladd of York/Sedgwick in March and was postponed due to coronavirus, cannot be rescheduled. Sedgwick has reallocated its resources after the merger with York and will no longer provide these services. Once an alternative auditor is secured, Laborde will advise the LIGA board.
According to Arceneaux’s report, LIGA received 111 open claims from the Gateway liquidation and 151 open claims from the ASIC liquidation. The majority of the claims from both liquidations involve litigation. The 262 policies mostly cover taxi cabs, Uber/Lyft and non-emergency paratransit vehicles. Arceneaux told the board that LIGA’s current staff has the capacity to handle these files.
She also reported that LIGA still has 53 open medical malpractice claims from the Capson Physicians Insurance Company liquidation. Capson, a Texas domiciled carrier, was placed in liquidation June 28, 2019. Since the policies were claims-made policies and the liquidation order canceled all policies, including tail/extended reporting policies, effective July 28, 2019, LIGA does not expect to receive any additional claims.
In the Guarantee Insurance Company liquidation, LIGA originally received 75 workers’ compensation claims and now has only seven remaining open. LIGA has collected 100 percent of its reimbursements in the amount of $604,914.06 from high net worth insureds.
According to Arceneaux, the Claims Department currently consists of seven members: one manager, five examiners and one claims assistant.
The five examiners are dedicated to the following specialties: two workers’ compensation examiners, two auto examiners and one environmental examiner.
In Arceneaux’s report to the board, she said that from Feb. 29, 2020, to Aug. 31, 2020, open claims increased from 1,062 to 1,138.
Of the Claims Department’s 1,138 pending files, 712 are environmental; 148 are workers’ comp, and 278 are auto and others.
LIGA’s current reserves, according to Arceneaux’s report, amount to $121,626,599.
She reported that LIGA’s current filings with the Second Injury Fund are $149,695.59. Filings amounted to $502,984.94 in 2017, $420,844.81 in 2018, $384,515.48 in 2019, and $186,985.27 at the end of Aug. 2020. LIGA currently has 18 Second Injury Fund cases open.