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Declaring Reliance Insurance Co. insolvent, the Commonwealth Court of Pennsylvania Wednesday placed the Philadelphia-based company into liquidation and ordered a 90-day stay on litigation against all Reliance insureds. Judge James Gardner Colins entered the 12-page order in Koken v. Reliance Ins. Co. in the afternoon after a morning hearing on a petition from state Insurance Commissioner M. Diane Koken. Koken will now fill the role of liquidator. “After extensive and diligent effort, we have determined that there is no alternative to the liquidation of Reliance Insurance Co.,” Koken said in a statement. “The financial difficulties of Reliance are worse than we knew on May 29, when we obtained an order of rehabilitation. “Further attempts to rehabilitate Reliance would be futile and would substantially increase the risk of loss to Reliance policyholders, claimants and creditors.” Now that the company has been placed into liquidation, the Pennsylvania Property and Casualty Insurance Guaranty Association and the Workers’ Compensation Security Fund will take over the payment of claims filed in Pennsylvania. The insolvency, however, might leave some claimants lacking full recovery because PPCIGA has a $300,000 cap per claimant. The workers’ compensation fund, however, does not have a similar cap. The Commonwealth Court also asked all state and federal courts across the country to honor the stay, and the stay of action in cases against Reliance itself also will continue. According to David F. Simon, chief counsel for the Pennsylvania Insurance Department, the stay will allow the guaranty associations time to become involved since Reliance will no longer handle the claims. The Insurance Department will notify policyholders of the situation, advising them of the procedure to file claims with the liquidator. Reliance, however, will continue to make payments on workers’ compensation and personal injury protection claims throughout the 90-day stay, Simon said. Reliance’s insolvency is one of the largest in the nation’s history and “significantly larger” than the insolvencies of medical malpractice insurance companies PIC Insurance Group and PIE Mutual Insurance Co., Simon said. The Reliance liquidation is much more complex as well, Simon said, because of the number of states in which Reliance wrote insurance and the wide variety of insurance policies, from workers’ compensation to property and casualty. Reliance had been licensed to write coverage in all 50 states, but the greatest number of policyholders are in Pennsylvania, California, New York, Florida and Texas. In her statement, Koken said that an investigation of Reliance’s assets showed that the company had a negative surplus of $1.1 billion. Koken said the shortfall of cash receipts, particularly those of reinsurance needed to pay policyholder claims, had been “significantly exacerbated” by the terrorist attack on the World Trade Center. The commissioner also said that a financial model shows that Reliance would be unable to pay policyholder claims as early as the fourth quarter of 2001. Coverage to all current Reliance insureds will be terminated within 30 days. The Insurance Department had expected the decision whether or not to liquidate Reliance to take six months, but the department was able to reach a conclusion in about four months.

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