Source: http://www.caclo.org/perl/index.pl?document_id=1247e8b2d121535aad8be12c34916ec1
Timestamp: 2019-04-22 03:57:50+00:00

Document:
Applicant is the duly appointed Insurance Commissioner of the State of California.
Respondents Legion Insurance Company and Villanova Insurance Company ("Respondents" or "Legion" and "Villanova"), are now and at all times mentioned have been corporations duly organized and existing under and by virtue of the laws of the State of Pennsylvania and domiciled there, with their principal offices in Philadelphia, Pennsylvania.
Legion is authorized to transact the following classes of insurance: fire, marine, disability, liability, workers' compensation, common carrier liability, credit, team and vehicle, automobile and miscellaneous insurance in California, under the authority of a Certificate of Authority issued by the Commissioner.
Villanova is authorized to transact the following classes of insurance: fire, marine, surety, disability, plate glass, liability, workers' compensation, common carrier liability, boiler and machinery, burglary, sprinkler, team and vehicle, automobile, aircraft and miscellaneous classes of insurance in California, under the authority of a Certificate of Authority issued by the Commissioner.
Respondents have no offices in California and they have no officers in California.
On March 28, 2002, the Commonwealth Court of Pennsylvania issued Orders of Rehabilitation for Respondents. The Pennsylvania Insurance Commissioner was appointed as Rehabilitator of Respondents effective April 1, 2002.
On April 1, 2002, Legion stopped paying all claims with the exception of workers' compensation.
Based on the Pennsylvania court order and an extension to that order, the Pennsylvania Rehabilitator was required to stop paying workers' compensation claims on October 25, 2002, to those claimants in states where the statutory deposit had not been turned over to the Pennsylvania Rehabilitator to be used to pay those claims. By Pennsylvania court order, express authorization to permit payment of workers' compensation claims was granted in two-week intervals. This ruling impacted California policyholders by delaying payment to them and prompted the Commissioner to seek an ancillary receivership in order to secure the workers' compensation statutory deposits in California. All other claims in California went unpaid.
On May 3, 2002, pursuant to Insurance Code §1064.3 and upon verified application by the Commissioner, this Court issued an Order appointing the Commissioner as Ancillary Receiver of Respondents.
Pursuant to Insurance Code §11715, Legion deposited $87,446,916 and Villanova deposited $31,939,294 in Letters of Credit in California banks or financial institutions plus $495,000 in securities to secure their obligations to their California workers' compensation policyholders.
Pursuant to the May 3, 2002, order appointing the Commissioner Ancillary Receiver, the Commissioner drew down the combined amount of $119.3 million from the Letters of Credit used to collateralize Legion's workers' compensation statutory deposit requirements. This draw down was accomplished to protect California workers' compensation policyholders from Respondents' potential failure to pay workers' compensation benefits.
The Commissioner contracted with the California Insurance Guarantee Association (CIGA) to administer the workers' compensation deposits to ensure continued payments of workers' compensation benefits to California policyholders. The California workers' compensation policyholders currently are paid from these funds. However, it is estimated that these funds will be depleted in early May 2003.
On August 29, 2002, the Pennsylvania Department of Insurance filed a Petition for Liquidation of Respondents in the Pennsylvania Commonwealth Court. Protracted hearings on the liquidation petition continued throughout November 2002. Subsequently, the Pennsylvania Commonwealth Court requested additional briefing and established a post-hearing briefing schedule through December 2002. The Pennsylvania Commonwealth Court has yet to act on the Petition for Liquidation. No liquidation order has been issued in Pennsylvania.
In October 2002, Respondents were advised to stop writing new business and renewals of existing business in California, and have not resumed doing so.
The Commissioner determined that Legion had a policyholders' surplus of negative $292,334,113 as of December 31, 2001, the date of its last officially filed annual statement with the California Department of Insurance. Legion reported that as of December 31, 2001, it had total net admitted assets of $1,116,131,000 and total liabilities of approximately $817,835,000 resulting in a policyholders' surplus of $298,296,000. However, Legion's policyholders' surplus as of December 31, 2001, when adjusted to conform to the laws, regulations and accounting practices of California, was negative $292,334,113.
The Commissioner determined that Villanova had a policyholders' surplus of negative $78,581,803 as of December 31, 2001, the date of its last officially filed annual statement with the California Department of Insurance. Villanova reported that as of December 31, 2001, it had total net admitted assets of $173,162,000 and total liabilities of $145,524,000, resulting in a policyholders' surplus of $27,638,000. However, Villanova's policyholders' surplus as of December 31, 2001, when adjusted to conform to the laws, regulations and accounting practices of California, was negative $78,581,803. Supervising Insurance Examiner Robert Loo's analysis of Respondents' financial condition is set forth in the Declaration of Robert Loo in Support of Verified Application for Order of Liquidation.
Insurance Code §§700.01, 700.02, and 700.025 set forth the requirement of minimum capital and surplus of $5,400,000 for an insurer transacting the classes of insurance authorized by the Certificate of Authority issued by the Commissioner to Respondents. The Commissioner determined that liquidation of Respondents is warranted on the grounds that Respondents are in such condition that the further transaction of business by Respondents is hazardous to their policyholders, creditors, and the public (Ins. Code §1016), and that by reason of their insolvency, Respondents no longer meet the requirements for issuance of a Certificate of Authority (Ins. Code, §1011(h)).
Respondents' policyholder surplus is less than the minimum amount of capital and surplus required by California Insurance Code §§700.01, 700.02 and 700.025, for an insurer transacting the classes of insurance authorized by the Certificate of Authority issued to Respondents by the Commissioner. Pursuant to California Insurance Code §985, Respondents are statutorily insolvent and such condition constitutes grounds for liquidation under California Insurance Code §1011(h) and (i). The Commissioner finds that such deficiencies indicate that Respondent is "in such condition that its further transaction of business will be hazardous to its policyholders, or creditors or to the public" within the meaning of Insurance Code §1011(d).
Respondents' workers' compensation statutory deposits are estimated to be deficient by at least $55.9 million (Legion) and $91.3 million (Villanova), with the likelihood that said deficiencies are substantially higher.
Since his appointment as Ancillary Receiver, the Commissioner has confirmed that Respondents' financial condition is as analyzed by the Department of Insurance's financial analysts. Further, since being appointed as Ancillary Receiver, the Commissioner has not discovered additional assets that could reasonably lead to Respondents' rehabilitation. In addition, based upon the information currently available to the Commissioner as Ancillary Receiver, he has determined that Respondents' financial condition has worsened since the date of appointment of the Commissioner as Ancillary Receiver, such that no claims are being paid with the exception of workers' compensation claims. Workers' compensation claims are being paid out of Respondents' statutory deposits in California and those deposits are projected to be depleted in early May 2003.
In light of the fact that both Legion and Villanova have been placed into rehabilitation proceedings in Pennsylvania, copies of this verified application, notice of hearing, the supporting declaration of Robert Loo and all other supporting documents are being sent by UPS overnight mail to the following persons at their last known addresses: (1) M. Diane Koken, the Insurance Commissioner of the State of Pennsylvania; (2) Bruce Daley, the on-site rehabilitator for both Legion and Villanova; (3) Mutual Risk Management, Ltd. the corporate parent of both Legion and Villanova; and (4) the California Insurance Guarantee Association.
Based upon the above, and pursuant to Insurance Code §1016, the Commissioner has determined that it would be futile to continue to proceed as Ancillary Receiver, and therefore seeks to liquidate Respondents' business.
For such other relief as the Court deems necessary and proper.
I am employed by the Insurance Commissioner of the State of California as Special Deputy Insurance Commissioner and Chief Executive Officer of the Conservation & Liquidation Office ("CLO") of the California Department of Insurance. I have read the foregoing VERIFIED APPLICATION FOR ORDER OF LIQUIDATION and know the contents. The facts contained therein are not all within my personal knowledge, and I am informed that no single officer of the CLO has personal knowledge of all these matters. The statements are based upon information assembled by authorized employees of the CLO, and I am informed and believe that the statements based upon that information are true. As to those matters that are within my own personal knowledge, the statements are true.
Executed this 20TH day of March, 2003 at San Francisco, California.
The Commissioner is applying to this Court for an order appointing him as Liquidator of Respondents Legion Insurance Company and Villanova Insurance Company (collectively "Legion"). The Commissioner's verified application is based upon his determination that it is futile for Respondents' ancillary receivership to continue, and that, pursuant to Insurance Code §1016, it is appropriate to liquidate the business of these companies.
The Commonwealth Court of Pennsylvania placed Respondents in rehabilitation.
Section 1064.3 requires that the Commissioner file an application for appointment as ancillary receiver if it is found that there are sufficient assets of the insurers in California to justify the appointment of the ancillary receiver.
As stated in this verified application, the Commissioner has established that it would be futile to proceed with the conduct of Respondents' business.
Insurance Code §1019 provides that upon the issuance of an order of liquidation, the rights and liabilities of the insurer and of any other persons, including creditors and policyholders, interested in its assets shall be fixed as of the date of entry of the order. Insurance Code §1020 provides that this Court shall issue orders as may be deemed necessary to, among other things, prevent waste of assets, obtaining of preferences, and interference with the Commissioner as Liquidator or the liquidation proceeding.
Insurance Code §1035 provides that the Commissioner as Liquidator may appoint and employ deputy commissioners, clerks, and assistants to carry out his function and to pay the costs and expenses of liquidating the insurer out of the assets of the insurer, and then to extent necessary, out of the funds of the Department of Insurance.
Insurance Code §1037 specifies the powers which accrue to the Commissioner upon his appointment as Liquidator. These include, but are not limited to, the authority to collect all monies and debts due to the insurer, to conserve the assets of the insurer, to compromise and settle claims against the insurer, to acquire and dispose of property belonging to the insurer, and to prosecute and defend all lawsuits against the insurer.
Lastly, Insurance Code §§1021 and 1022 provide that the Commissioner, upon his appointment as Liquidator, shall publish notice in newspapers of general circulation throughout the State to the insurer's policyholders, creditors, shareholders, and all other persons interested in its assets.
Based on the facts set forth in this verified application, appointment of the Commissioner as Liquidator of Respondents is fully warranted. For all the foregoing reasons, the Commissioner respectfully submits that his request for an order appointing the Commissioner as Liquidator and to liquidate the business of Respondents should be granted.

References: §1064
 §11715
 §1016
 §1011
 §985
 §1011
 §1011
 §1016
 §1016
 §1019
 §1020
 §1035
 §1037