The U.S. Court of Appeals for the Ninth Circuit has upheld an arbitration award requiring U.S. Life Insurance Co. to pay reinsurance of more than $500 million to Superior National Insurance Companies. Superior was the workers’ compensation insurer and is now in liquidation. California Insurance Commissioner Steve Poizner had this to say about the ruling:
Upholding this award means that that hundreds of millions of dollars will be available to pay the claims of workers injured on the job through the California Insurance Guarantee Association (CIGA) and other guarantee associations.
U.S. Life is a subsidiary of American International Group (AIG) and was a reinsurer for five California workers’ compensation insurance companies that were liquidated in 2000. U.S. Life contended that Superior National and its affiliates failed to disclose to U.S. Life all pertinent information regarding the adequacy of its outstanding reserves for payment of claims, and exposing U.S. Life to substantial losses.
On June 25, 2007, a district court in Los Angeles entered an original judgment against U.S. Life for $443.5 million. U.S. Life subsequently appealed to the Ninth Circuit. The original judgment was unanimously upheld by the federal three-judge appeals panel. Including post-judgment interest, the judgment is now more than $517 million. Interest will continue to accrue until payment is received from U.S. Life.
It appears that at no time were people in the workers’ compensation system at risk of not being paid. The California Insurance Guarantee Association has been paying the claims of injured workers whose policies were reinsured by U.S. Life. Once the money is collected from U.S. Life, or from the $600 million bond AIG posted as security, it will be distributed to CIGA and other guaranty associations. CIGA will receive about 90% of the final amount.
Source: Insurance Journal
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