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The Kemper/Lumbermens saga

To refresh everyone’s recollection, this is a report from Business Insurance from March 14, 2010:

  • The Long Grove, Ill.-based insurer [Kemper], which has been in voluntary runoff since 2004, earlier this month revealed a steep decline in its surplus, which several observers say indicates that liquidation is near.
  • But that may be preferred by some policyholders who have been wary of settling liabilities with Kemper without full knowledge of its settlement strategy, which they say has been veiled by the confidential nature of the runoff, some observers note.
  • In financial statements filed March 1, Kemper reported that its lead insurance unit, Lumbermens Mutual Casualty Co., had a surplus of $8.1 million as of Dec. 31, 2009, a drop from about $113.2 million a year earlier.
  • Kemper’s American Manufacturers Mutual Insurance Co. unit reported surplus of $11.2 million at the end of 2009, relatively unchanged from a year earlier. Lumbermens reinsures American Manufacturers, sources said.
  • The Illinois Department of Insurance approved Kemper’s runoff in 2004. Details of the runoff operations under the department’s supervision have been kept confidential.
  • But with Kemper’s operating expenses running at about $5 million a month and its surplus nearing depletion, a liquidation order is expected this year, several sources said.

It took another three years for the Kemper/Lumbermens companies to be ordered into liquidation proceedings in Illinois, over a decade after its alarming financial condition burst into public view at the end of 2002. Another ten years later, that liquidation continues, as noted in the Office of Special Deputy Receiver’s 2022 Annual report (see pages 6-7).Continue Reading Is Arrowood the next Kemper? The insurance insolvency system is broken

Chapter 11 bankruptcy as a means for resolving mass tort claims

In recent years, a growing number of defendants have sought to use reorganization under chapter 11 of the United States Bankruptcy Code to obtain permanent and complete relief from mass tort claims. Many of these entities were defendants in asbestos bodily injury litigation, and were eligible for the special protections for such claims provided in Bankruptcy Code section 524(g). Yet defendants facing other types of claims – including those alleging bodily injury from silica, talc, silicone breast implants, opioid painkillers, and allegedly defective ear protection – also have pursued relief in bankruptcy cases. Several Roman Catholic dioceses, as well as the Boy Scouts of America, have used chapter 11 to seek permanent solutions to sex abuse claims. 

The general outline of the chapter 11 strategy for all of these defendants is similar. A debtor entity obtains immediate relief from tort system litigation (and its attendant costs) by filing bankruptcy, due to the automatic stay of all litigation under Bankruptcy Code section 362. It then prepares a chapter 11 plan that establishes a settlement trust to resolve the mass tort claims against it. The debtor will ask a Bankruptcy Court to issue an injunction that will force mass tort claimants to forego tort litigation against the debtor, in favor of submitting to the settlement trust for resolution.  The debtor’s aim is to emerge from the chapter 11 proceeding shorn of its mass tort obligations, with the settlement trust serving as the exclusive source of resolution for those claims on a permanent basis.Continue Reading Liability insurance in mass tort bankruptcy cases – A brief primer

Yesterday, the United States Supreme Court handed a win to Travelers (and indirectly to chapter 11 debtors using insurance proceeds to fund bodily injury trusts), getting Travelers out of further liability arising from its actions “related to” its role as the primary insurer of Johns-Manville. These were not suits seeking proceeds of the insurance policies issued by Travelers to Johns-Manville, but suits alleging that Travelers had an independent duty to claimants arising from its knowledge of the dangers of asbestos.

Resting on res judicata and the finality of settlements and judgments, the Court refused to address whether the Bankruptcy Court’s 1986 Orders had exceeded its authority. That time, according to the Court, had long passed:

Almost a quarter-century after the 1986 Orders were entered, the time to prune them is over.

The Court reserved for another day (never?) the question of the proper scope of Bankruptcy Court authority in these matters:Continue Reading Travelers v. Bailey