Insurance Insolvency & Regulatory

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What is an insurance company “in run-off”?

An insurance company is considered to be in run-off when it ceases selling new insurance policies. The essential business of an insurance company is risk pooling. Insurance companies evaluate risks, price and sell insurance policies that assume risks, and pay claims to policyholders that suffer losses covered by the insurance. Insurance companies generate revenue to pay claims principally from two sources: premiums and investment income. Insurance companies also typically buy insurance to insure the risks they have assumed – called reinsurance – which acts as a secondary risk pool. When an insurance company enters run-off, it loses the benefit of ongoing premiums as a source of income to pay claims. The only sources of income become investment earnings, sales of assets, and potential recovery from reinsurance.

What does run-off mean for the policyholder?

Being in run-off does not absolve an insurance company of its duties under policies it has already sold. The contractual relationships between the insurance company and its policyholders do not end. The insurance company still owes to its policyholders the full complement of duties that the policyholder purchased with its premiums. Most important, the insurance company must pay claims as they come due under the policies.

While entering run-off cannot rewrite the terms of existing insurance policies, in practice, many policyholders encounter unexpected challenges from an insurance company in run-off. Because the insurance company is no longer writing new business, its claims-handling protocol may not prioritize customer service as an active company, seeking to maintain its customers, might. In many circumstances, the insurance company may contract with a professional run-off administrator to handle claims. While, again, a run-off insurance company and its agents are subject to the same duties to policyholders as existed before the run-off, from the policyholder’s perspective, the quality of claims handling is often diminished.…

Continue Reading Insurance companies in run-off

Faced with mounting claims for insurance coverage as a result of the novel coronavirus (COVID-19) outbreak, commercial insurers are likely to search for any policy provision that they think will enable them to avoid paying virus-related claims.  One provision that insurers ultimately may invoke in an attempt to deny such claims is the so-called “pollution exclusion” – an exclusion that can be found in both commercial general liability (CGL) insurance policies and property insurance policies.  Policyholders should anticipate such an argument and should not walk away from insurance claims just because of it.  Although the exclusion is often broadly worded, there is generally good reason not to read it to preclude coverage for third-party claims and/or first-party losses involving viruses, including COVID-19.

While the exact language of the pollution exclusion may differ from one policy to another, it typically provides that there is no insurance for “bodily injury” and/or “property damage” that “would not have occurred in whole or in part but for the actual, alleged, or threatened discharge, dispersal, seepage, migration, release, or escape of ‘pollutants’ at any time.”  Again, while its precise definition can vary among policies, “pollutant” is typically defined as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste.”…

Continue Reading Pollution exclusion should not preclude coverage for virus-related claims

Pennsylvania’s burgeoning medical-marijuana industry is and will be carefully regulated. When purchasing insurance, medical-marijuana dispensaries should pay careful attention to the Commonwealth’s regulations, in particular to the regulations relating specifically to dispensaries. Pennsylvania’s medical-marijuana regulations are only temporary, and most of them (including the ones relating to dispensaries) will expire in 2018

Certain of those regulations directly address insurance. For example, Pennsylvania requires that dispensaries “obtain and maintain an appropriate amount of insurance coverage that insures the site and facility and equipment used in the operation of the facility.” 28 Pa. Code § 1141.44(a). “An adequate amount of comprehensive liability insurance covering the [dispensary’s] activities authorized by the permit shall begin on the date the initial permit is issued by the Department and continuing for as long as the [dispensary] is operating under the permit.” Id.

Pennsylvania also requires that all dispensaries “obtain and maintain workers’ compensation insurance coverage for employees at the time the [dispensary] is determined to be operational by the Department.” 28 Pa. Code § 1141.44(b).
Continue Reading When Assessing Insurance Needs, Medical-Marijuana Dispensaries Must Consider Pennsylvania Regulations

Last week, the U.S. Congress adjourned for the year without making any provision for extending the federal Terrorism Risk Insurance Act (“TRIA”). Absent some sort of extension, TRIA thus will expire next week – on December 31, 2014. As a result, insurers will no longer be required to offer terrorism insurance, and even those insurers that do offer the coverage may well reassess their risk and price the coverage at substantially increased premium rates.
Continue Reading Reed Smith’s Insurance Recovery Group Ready to Help Policyholders after U.S. Congress Fails to Extend TRIA