Opinion ID: 69784
Heading Depth: 2
Heading Rank: 2

Heading: Ford's Policy Change

Text: Ford claims that events in 2003 forced it to reevaluate its financing standards. National Warranty Insurance Company (NWIC), another RRG that wrote insurance for third-party sellers of VSCs, filed for bankruptcy protection in the Cayman Islands. The NWIC bankruptcy left many consumers with essentially worthless VSCs. The bankruptcy impacted Ford and its dealers because consumers who had purchased NWIC-backed VSCs from Ford dealers looked to the dealers to satisfy the obligations of those contracts. Many dealers were concerned about the effect on their reputations, and chose to bear the cost of the repairs themselves, or sought assistance from Ford, in order to keep their customers happy. Ford effectively assumed responsibility for the liability on numerous NWIC-backed contracts. NWIC, like many insurers, had been rated by A.M. Best. Although A.M. Best had downgraded NWIC's rating to a grade below A-, Ford had continued to finance transactions that included NWIC-backed VSCs because NWIC had reinsurance from an insurance carrier that had an A.M. Best rating of A- or better. When NWIC went bankrupt, however, the reinsurer did not cover NWIC's obligations on the VSCs it had insured. Instead, the reinsurance obligations flowed only to NWIC, rather than to the consumers, meaning the vehicles would not be properly serviced and consumers would be left to make claims in bankruptcy court after NWIC filed for bankruptcy protection. Ford determined that beginning January 1, 2005, it would no longer finance the purchase of VSCs unless the contracts were backed by an insurer with an A.M. Best rating of A- or better; the A.M. Best rating of a reinsurer would no longer be sufficient. Marathon has no A.M. Best rating of any kind and has never had or sought such a rating. Marathon sought an exemption from the A- financial stability rating requirement. Marathon claimed to Ford that despite having no rating, the VSCs it backed for API were secure. Ford extended the operative date of the A- financial stability rating requirement to Marathon-backed VSCs, but Marathon could not obtain the rating within the allotted time. Although Marathon offered to provide Ford a letter of credit securing its obligations on the VSCs that it insured, it never obtained such a letter of credit. Ultimately, the A.M. Best A- rating was impossible for Marathon to obtain. API found an insurer rated A- or better by A.M. Best and continued its business relationship with Ford. [2] Marathon lost other business as well; Marathon-backed VSCs could not be sold to other auto brands because dealerships found it too cumbersome to sell one VSC product to Ford and another to the other auto brands.