RECIPROCAL OF AMERICA AND
THE RECIPROCAL GROUP
  In Receivership for Liquidation  

 

     

CLAIM PAYMENTS FROM THE RECEIVERSHIP ESTATE

Question: Did the Deputy Receiver’s Application for Orders Setting Hearing on Liquidation of ROA and TRG, Establishing Response Dates, Ordering Liquidation, Approving Claims Bar Dates, and Related Matters (the "Application") address claim payments?
   
Answer: Yes. As part of the Application to the State Corporation Commission of the Commonwealth of Virginia (the "Commission"), the Deputy Receiver advised the Commission that no further payments on direct insurance claims would be made without an order of the Commission approving such payments. The Deputy Receiver also requested approval to continue to make medical and disability payments (the "Disability Payments") which arose under workers compensation policies until such time as the insurance guaranty associations ("GAs") in various states would begin making such payments. On the same day that the Application was filed, April 30, 2003, the Deputy Receiver issued his Fifth Directive Regarding a Discontinuance of Policy Payments and Discontinuance of Other Claim Payments (the "Fifth Directive").
   
Question: What did the Fifth Directive do?
   
Answer: The Fifth Directive ordered the discontinuance of payments to policyholders, subscribers, and third-party claimants whose claims arose under insurance policies issued by ROA (each an "Insurance Policy" and collectively "Insurance Policies"), until such time as the payments may be made by the GAs or in accordance with orders issued by the Commission. The Deputy Receiver also ordered the discontinuance of payment of all other claims of any nature against the Companies, including the payment of all creditor claims that are subordinate to Insurance Policy claims. Payment of proper administrative expenses and secured claims (to the extent of the security) owed by the Companies were ordered to continue. Additionally, due to the essential nature of Disability Payments, the Deputy Receiver was permitted to make the Disability Payments without interruption until such time as the payments began to be made by the GAs. At this time, the GAs are making the Disability Payments and other claim payments to the extent they have determined the payments to be for covered claims.
   
Question: Is the Fifth Directive still in effect?
   
Answer:

Effective on January 13, 2006, the Fifth Directive was modified by the Deputy Receiver’s Eighth Directive Regarding Claim Payments (the "Eighth Directive"). For further information, see the question below titled "Does the Deputy Receiver have authority to resume claim payments for ROA policyholders and insureds?"

   
Question: Why did the Deputy Receiver discontinue payment of Insurance Policy claims?
   
Answer: Due to its deep insolvency, the Deputy Receiver determined that there is some question about ROA's ability to continue making full payments on claims arising under direct Insurance Policies without creating a risk that unanticipated adverse developments might make such full payments improbable for similarly situated claimants in the future. The determination that ROA is insolvent, and the magnitude of that insolvency, therefore, caused the Deputy Receiver to conclude that it would be prudent to discontinue the further payment of claims asserted by ROA's direct insureds. However, the Commission has approved the Deputy Receiver's application for authority to make partial payments on those claims.  For further information, see the question below titled "Does the Deputy Receiver have authority to resume claim payments for ROA policyholders and insureds?"
   
Question: Why did the Deputy Receiver continue to pay certain claims for Disability Payments arising under workers’ compensation policies?
   
Answer: Many of the applicable GAs asserted that claims which ROA assumed from certain self-insured trusts and group self-insurance associations ("Assumed Claims"), including workers’ compensation claims for Disability Payments, were not "covered claims" and, therefore, these GAs were not providing any payments for the Assumed Claims. Given their essential nature, the Deputy Receiver requested permission from the Commission to continue making Disability Payments for the workers’ compensation Assumed Claims rejected by the GAs while the matter was reviewed more thoroughly. The Commission permitted the Deputy Receiver to continue to provide only indemnity and wage replacement payments for such workers’ compensation Assumed Claims. A limited number of indemnity and wage replacement payments for workers’ compensation Assumed Claims were made directly from the ROA receivership estate. Many such claims were paid by other sources, such as employers.
   
Question: What did the Commission order with respect to the Assumed Claims?
   
Answer: From September 22, 2004, through September 30, 2004, a hearing was convened before a Hearing Examiner assigned by the Commission to determine whether the Assumed Claims are claims of "other policyholders arising out of insurance contracts" pursuant to § 38.2-1509(B)(1)(ii) of the Code of Virginia, such that they should be paid by the Deputy Receiver. On August 24, 2005, the Commission issued its Final Order in which it approved the Deputy Receiver’s Application for Order Authorizing the Continuation of Workers’ Compensation Disability Payments by Reciprocal of America and The Reciprocal Group for Workers’ Compensation Claims Denied Coverage by State Guaranty Associations subject to certain modifications. The Commission determined that the Assumed Claims constitute "claims of other policyholders arising out of insurance contracts" to be paid at the same percentage as the claims of ROA direct policyholders and insureds. The Commission subsequently issued an order (discussed below) approving the 17% payment percentage requested by the Deputy Receiver.
   
Question: Does the Deputy Receiver have authority to resume claim payments for ROA policyholders and insureds?
   
Answer: Yes, but not in full.  On July 20, 2004, the Deputy Receiver filed an Application for Approval of Agreement to Stay Proceedings and Tolling Agreement. Therein, the Deputy Receiver sought, among other things, a Commission order approving the partial payment of claims of ROA direct policyholders and insureds (including approved claims of the state insurance guaranty associations) ("ROA Claims") at a payment percentage of 17%. On December 13, 2005, the Commission issued its Final Order which authorized the payment of ROA Claims at 17% in an aggregate amount not to exceed $77,511,000.  The Final Order also authorized the Deputy Receiver to modify the Fifth Directive so that he could proceed with the partial payments.  The Deputy Receiver issued the Eighth Directive which directed ROA to make the payments approved by the Commission's December 13, 2005, Final Order.
   
Question: Were any payments being made prior to the Commission's December 13, 2005, Final Order?
   
Answer: Yes. Pursuant to the Commission’s Order of Liquidation with a Finding of Insolvency and Directing the Cancellation of Direct Insurance Policies, the Deputy Receiver was authorized to continue to pay administrative and overhead costs, including the salaries and benefits of the Companies current personnel.
   
Question: Why is the payment percentage 17%?
   
Answer: That is the amount that the Deputy Receiver has determined that he can pay safely, without unreasonable probability that later claimants would receive a lower percentage of their eligible claims (which would constitute a "preference" of creditors). Making a number of conservative assumptions, and taking other relevant factors into account, the Companies’ actuaries reviewed the necessary financial information and recommended a payment percentage of 17% to the Deputy Receiver. Their recommendation addressed the competing goals of the Deputy Receiver: to pay out as much as possible for policyholder claims without creating an unreasonable risk of preference or violating the priority provisions set forth in Virginia Code §38.2-1509. For further information on these priorities, see THE LIQUIDATION OF ROA AND TRG section of the Frequently Asked Questions.  The Commission approved the 17% payment percentage in its December 13, 2005, Final Order.
   
Question: Now that the 17% payment percentage has been approved by the Commission, when will I receive a payment on my claim?
   
Answer: As soon as possible once your claim is approved. Claims which have already been approved would be first in line to be paid at 17%. However, other claims are still being processed and would be paid as they are approved.
   
Question: Will the payment percentage increase?
   
Answer: There are many factors that affect whether or not the payment percentage will increase. However, there are a number of pending matters which, if ultimately resolved favorably to the Deputy Receiver, could result in an increase of the payment percentage. These matters are confidential and cannot be disclosed without risk of affecting adversely the interests of the receivership.