CAPTIVEINSIGHT
of the liquidation order, the Claims
would then become the responsibility
of each State’s Guaranty Association.
The client therefore loses control
of the process, the timing and the
amount. All insured are notified of
the liquidation and have to forward
payment requests to the Guaranty
Funds in the first instance, who settle
and then forward reimbursement
requests to the Home State’s Statutory
Liquidator. A long and drawn
out process.
The medical reimbursement creditors
for workers compensation claims are
the hospitals and physicians who dealt
with the injured claimant. They know
that insurance company liquidation is
a long process, and they would rather
be paid now than wait five years
– as such discounts are typical. So
between the dates of the rehabilitation
order and the liquidation order the
claim closure rates escalate, but the
indemnity levels are typically at 50%
of the reserve amount. This is the
only good news for any captive owner
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caught up in the process, because once
the State Guaranty funds take over
the claims process the captive owner
loses control.
A Big Wrinkle
In the case of a failed insurance
company for which the insured is a
private entity owned by a high net
worth individual (over $20million
in assets is typical), certain State
Guaranty Funds can deny any workers
compensation claims and make the
ultimate shareholder responsible.
Any HNW individual caught in
this predicament and responsible
for the direct payment of the claims
would then have to try and get
subrogation from the liquidator
for claims reimbursement from the
captive’s assets.
Collateral Issues
A 114 Trust offers the same protection
in liquidation as a letter of credit for
the captive’s collateralised assets, but
is a lot easier to administer for claims
reimbursements to the Guaranty Funds.
A letter of credit (LOC) will probably
be drawn down in full at the outset
of the liquidation, even though the
claims are paid in staggered amounts.
Either option is better than the “funds
withheld” alternative which provides
no protection from non-related claims
and expenses and will be seized by
the liquidators as “general assets”. As
such this asset is likely to be lost in
the process.
In the case of Ullico Casualty Company,
the Atlas client filed a restraining
order against the Liquidator at the
commencement of the liquidation
process to protect the Trust assets.
There is abundant case law protecting
Trust and LOC collateralised assets,
and so the restraining order was a
protective measure which would be
held up by the Courts if necessary.
Subsequently and following discussions
with the State appointed liquidator, the
restraining order has been revised to an
arbitration demand (under the terms of