Virginia Authorizes Partial Payments on Reciprocal of America Claims

December 13, 2005

Policyholders with a covered claim against insolvent Reciprocal of America can expect a partial payment soon. The Virginia State Corporation Commission is authorizing the deputy receiver of the liquidated reciprocal insurer to make a 17 percent distribution to policyholder-level claimants.

ROA primarily wrote hospital professional liability insurance, workers’ compensation insurance, and some ancillary insurance for its insureds. It also provided reinsurance to various companies including three Tennessee risk retention groups, Doctors Insurance Reciprocal, American National Lawyers Insurance Reciprocal, and the Reciprocal Alliance.

ROA and its attorney-in-fact, The Reciprocal Group, were placed into receivership on January 29, 2003. On April 30, 2003, payment of all hospital liability claims was suspended by the deputy receiver. The SCC allowed the deputy receiver to continue paying certain workers’ compensation insurance claims upon which recipients typically rely for their livelihood and medical care.

As a result of the SCC’s order, Virginia Insurance Commissioner Alfred W. Gross, in his capacity as deputy receiver, is expected to soon modify his directive suspending payment of claims to allow for a partial distribution from the receivership estate. Virginia law requires that the deputy receiver treat all policyholder-level claimants equitably.

The 17 percent payment is capped at $77.5 million, which Gross believes is a conservative estimate of the assets that can be distributed at this time without unreasonable risk that later approved claims of equal priority will not receive the same percentage payment.

The bar date for the filing of claims was September 30, 2004. While the number of claims that might be filed has been fixed, the dollar value that ROA may have to pay on those claims is unknown.

The partial payment does not include the outstanding creditor claims of the Tennessee risk retention groups (RRGs). However, the Tennessee receiver agrees with the partial payment arrangement. The agreement allows ROA and the Tennessee RRGs to cooperate in the preservation and marshalling of the assets of their respective receivership estates.

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