States getting impatient with National Warranty liquidators

 No comments  
 E-mail Story
 Print Story
  Share

 digg it!
 Facebook
 del.icio.us
Seed Newsvine
Fark It
Reddit

Text Size: 

Tools Sponsor

BY DICK PIERSOL / Lincoln Journal Star

Originally published 7-25-2004

State insurance regulators from all over the nation are pressing the liquidators of the insolvent National Warranty Insurance Group and Cayman Islands authorities to cooperate in helping hundreds of thousands of U.S. consumers burned financially by the Lincoln company's failure.

KPMGCaymans, liquidating the insolvent company for the past year, have spent National Warranty's remaining money at a rate that state regulators estimated at $20,000 a day, as of the latest spending report.

Assets have been listed at no more than $24 million, and the magnitude of liabilities still is unknown, but estimates are as high as $160 million.

So time is of the essence to members of the National Association of Insurance Commissioners, if there is any hope of recovering money for people who bought motor vehicle service contracts insured by the now insolvent company and for dealers who honored repair claims without being reimbursed.

The state insurance regulators are getting sick and tired of this thing.

"The reality is we are very impatient," said Jose Montemayor, Texas commissioner of insurance, and chairman of the association's property and casualty committee, whose members first met with the liquidators in March. "This thing has way overstayed its course. It's past high time we came up with some semblance of a resolution for (vehicle service) policy holders.

"Every single passing day is burning through an enormous amount of money," Montemayor said. "We have a vastly inequitable system in the current state of affairs, and (it's) basically inaccessible to the average citizen in Austin, Texas, or Lincoln, Nebraska."

That frustration is barely contained in a letter Montemayor sent to the liquidators and the Caymans insurance regulator on his behalf and that of other state commissioners, including Nebraska Insurance Director Tim Wagner.

The peculiarities of National Warranty's circumstances are wearing thin, as Montemayor made clear.

"As I am sure you can appreciate, the frustration of contract-holders unpaid claims is often directed to state insurance regulators even though NWIG has never been under their jurisdiction," Montemayor wrote. "Given the total pre-emption of state authority over NWIG under the federal Risk Retention Act of Act of 1986, U.S. state insurance regulators have found it difficult to effectively respond to NWIG's collapse and resulting liquidation. Establishing a claims process for contract holders will go a long way towards resolving individual complaints."

Keith Blake, director of corporate recovery for KPMG Caymans, said the company is still preparing a response to the letter. Marylou Gallegos , head of insurance regulation in the Caymans, could not be reached to comment.

As one of the earliest examples of risk retention groups, a type of insurer authorized by Congress to cover the risks of its members, National Warranty was allowed by federal law to choose one regulating authority. It chose the Cayman Islands, where it was officially organized, even though it insured risks only in the United States. So National Warranty was supervised by the Caymans insurance regulators, and its liquidation is being supervised by the Grand Court of the Caymans.

That venue is one of the sore points among the regulators.

Something must be done, Montemayor wrote, to resolve the inconvenience of the Cayman Islands forum. "Neither individual contract holders nor state insurance regulators in the U.S. have the resources or requisite experience to effectively advance their interests," he wrote. "State insurance regulators are totally unfamiliar with Cayman proceedings, and while they are not regularly involved in federal bankruptcy proceedings in the U.S., such forums are far more familiar and accessible."

The regulators said months ago they might ask to have the liquidation moved back to the United States, where, in the federal bankruptcy court that serves Nebraska, Judge Timothy Mahoney has ruled on issues that require a U.S. judicial solution to international problems the case presents.

But in Montemayor's letter, the insurance commissioners suggested a variety of ways the liquidators, the regulators, the Caymans court and the U.S. bankruptcy court might protect the interests of U.S. buyers who paid $1,500, more or less, to make sure their future repairs were covered by a vehicle service contract.

Diplomatically, Montemayor expressed appreciation to KPMG Caymans for committing itself to achieving "openness and transparency" in the Caymans court proceedings.

He also wrote that the regulators were encouraged by the liquidators' attempts to recover money from the insolvent National Warranty's auditors and actuaries. The liquidators recently filed suit for damages in U.S. Bankruptcy Court, accusing Deloitte Touche, the auditors, and Milliman USA, the actuaries, of helping to cause the insolvency by neglecting their duties.

"However, state insurance regulators recent experiences with the (liquidators) have not been positive," Montemayor wrote. For example, KPMG Caymans has not responded to the state of Iowa's months-old request for a list of the members of the National Warranty risk retention group. They are the dealers and other vendors of vehicle service contracts whose liabilities were supposed to be insured by National Warranty. Nor has Iowa received, as requested, the opportunity to examine National Warranty's books and records and to be notified of all developments.

"We are concerned that costs of administration will consume any assets now available to pay claimants even before a claims procedure can be implemented,"Montemayor wrote. "Clearly, the time has come to accelerate this process so that in the near term some measure of relief can be afforded to the service contract holders."

In an interview with the Journal Star, Montemayor emphasized his points in a different vernacular: "I feel for the little guy who's got a broken tranny," he said. "The letter is meant to be helpful suggestions to break this godawful, intractable situation we've got."

Nebraska's insurance commissioner, Wagner, who is vice chairman of the regulators' committee, said he found nothing to fault in Montemayor's letter. He wondered aloud why the merchants who sold the contracts insured by National Warranty aren't themselves being forced into bankruptcy, and their assets protected by a trustee. He wouldn't comment on whose responsibility that might be.

"Remember this as a premise: In a liquidation, very few people are happy," Wagner said. "It's an extremely ugly business."

Reach Dick Piersol at 473-7241 or at dpiersol@journalstar.com.

SUGGESTIONS GIVEN TO LIQUIDATORS, REGULATORS

To help the people who bought motor vehicle service contracts insured by the now insolvent National Warranty Insurance Group, members of the National Association of Insurance Commissioners' have made these suggestions and requests to the risk retention group's liquidators and Cayman Islands regulators:

* The identity of all the vehicle service contract holders, their legal status and what they paid for contracts should be quickly determined and disclosed. The state regulators say they still don't know who possesses or maintains these records.

The liquidators say there were almost half a million vehicle service contracts in force and insured by National Warranty when it went into liquidation. The liquidators said earlier those contract owners' claims are with the people who sold them, not with National Warranty. That interpretation conflicts with some state laws, including those of Texas and Nebraska, so regulators want that issue resolved.

* The U.S. Bankruptcy Court in Nebraska should be called upon to order appropriate relief under broad authority allowed by U.S. law in international cases like this.

* Give state insurance commissioners an opportunity to directly participate in the liquidation on behalf of the service contract holders. Allow the formation of a contract holders' committee whose members would be state regulators and/or class action counsel.

* Any payments from liquidation to any of the organizations that sold the contracts - such as Warranty Gold or the Delta Group, a Texas marketing organization - should be paid either to the registry of a U.S. Bankruptcy Court or an appointed trustee. That would make sure everybody knows who gets what.

* The liquidators should ask the Grand Court of the Caymans to authorize class proofs of claim by authorized representatives of classes of people who held vehicle service contracts. That would allow the interests of the entire class of vehicle service contract holders to be represented by state attorneys general or class counsel authorized under federal court rules. That would give vehicle service contract holders "their well-deserved place at the table."