NEW YORK, April 29 (Reuters Legal) - A Rhode Island state
court has upheld a statute under which insurance companies that
want to wind up their operations can buy policies back from
The decision by Associate Justice Michael Silverstein of
Providence Country Superior Court upheld a law that allows
insurance companies based in Rhode Island to pay creditors a
lump sum in exchange for full release from their liabilities.
In most states, insurers and reinsurers that want to wind
down can stop writing new policies. But, in a process known as
run-off, they must continue to pay claims on existing policies
for as long as claims are made.
In an effort to stimulate its economy and attract segments
of the insurance industry to the state, Rhode Island passed a
law in 2002 giving insurance companies an alternate run-off
The law came under judicial scrutiny when GTE Reinsurance
Company Limited filed a plan to wind down operations. The plan
was approved by a majority of the creditors, but affiliates of
Odyssey America Reinsurance Corp filed a motion claiming the
plan undervalued their claims. They also argued that the Rhode
Island law violated the contract and due-process clauses of the
United States and Rhode Island Constitutions.
Associate Justice Silverstein disagreed, finding that the
rights of the Odyssey affiliates were not impaired. He also
ruled that even if their rights had been impaired, it would be
justified by the Restructuring Act's "legitimate public
purpose" of stimulating the economy and attracting insurance
companies to the state.
"The Court is satisfied that the Restructuring Act is a
legitimate legislative enactment which addresses the State's
economic concerns and protects commercial insurance creditors
against the harms of run-off," Silverstein wrote in his
decision on Monday.
Gary Lee, an attorney at the law firm Morrison & Foerster
LLP, which defended the law on behalf of the Insurance Division
of the Rhode Island Department of Business Regulation, said in
a statement that the GTE plan "provides a roadmap for future
commutation plans under the statue."
Howard Merten, an attorney with Patridge Snow & Hahn who
represents Odyssey, did not return a call seeking comment.
The case is In Re: GTE Reinsurance Company Limited,
Providence County Superior Court, C.A. No. PB 10-3777.
(Reporting by Andrew Longstreth; Editing by Eddie Evans)