PAWTUCKET MUTUAL CANCELS IN N.Y.:

The New York Supreme Court recently affirmed the position of Rhode Island regulators that decisions on policy cancellations involving a rehabilitating insurer must be handled within their state rehabilitation court and not by the New York Department of Insurance or New York courts. The result is that mid-term cancellations of policies of Pawtucket Mutual Insurance Co. in New York have gone into effect. On June 16, the Rhode Island Rehabilitation Court authorized mid-term cancellations of all Pawtucket Mutual policies, including policies effective in New York. Pawtucket Mutual is under the state’s control. Marilyn Shannon McConaghy, director of the Rhode Island Department of Business Regulation and court-appointed rehabilitator, determined that the mid-term cancellations were necessary due to the prohibitive expense and the unavailability of adequate reinsurance to protect Pawtucket’s existence while she continued efforts to find a buyer for the troubled company. New York insurance officials argued that only the New York insurance superintendent—and not the rehabilitation court—could authorize mid-term cancellations of policies in New York. In furtherance of its position, the department obtained a temporary restraining order from the New York Supreme Court on Aug. 9, 2004, delaying the effective date of the cancellations. Relying primarily on the underlying premise of the Uniform Insurers Liquidation Act—to avoid inconsistent orders from courts of different states within the rehabilitation proceedings of one insurer—and on Underwriters National Assurance Co. v. North Carolina Life & Accident & Health Guaranty Assn., 455 U.S. 691 (1982), the New York Court agreed with the rehabilitator and directed the New York department to apply for relief in the rehabilitation court or have the temporary restraining order expire. The New York Department did not challenge the court’s ruling nor did it seek review in the rehabilitation court. As a result, the cancellations became final when the restraining order expired on Aug. 30.

Topics New York