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Richard A. Bieder, of Bridgeport, Conn.’s Koskoff, Koskoff & Bieder, said his firm has at least one case held in abeyance by an insurance insolvency stay. Connecticut lawyers are running into a new litigation pitfall, as insurance companies are placed in the limbo of insurer rehabilitation or the perdition of their liquidation. Pennsylvania-based companies have created the most problems, according to an informal survey of trial lawyers whose cases are on hold. On Oct. 3, 2001, Pennsylvania insurance commissioner M. Diane Koken announced that troubled Reliance Insurance Co. was no longer viable through rehabilitation, and would have to be liquidated. Cash flow from reinsurers slowed down, and other receivables were proving hard to collect, she said, noting “recent events at the World Trade Center that have made collections more difficult.” When insurance companies become insolvent, claims of up to $300,000 can be covered by the 32-year-old industry “safety net” of the Connecticut Insurance Guaranty Fund. Robert C. Messey, of New Haven, Conn.’s Sinoway & McEnery, has a pending litigation against American Medical Response ambulance company that has been transferred to the fund. Messey said that when a case is worth less than $300,000, there is the inconvenience of delays and red tape. It’s significantly worse, however, when cases are worth more than the fund’s self-imposed cap. Messey, who is a doctor as well as a lawyer, said he has at least one case worth more than $1 million that could be impacted by the fund’s limitations. In such cases, the defendant who bought adequate coverage is suddenly liable for the excess. The fund is represented by Joseph C. Tanski, of Boston’s Hutchins, Wheeler & Dittmar. He confirmed that the three main property and casualty insurers affecting Connecticut litigation are Reliance, Phico and Legion, all of which are headquartered in Pennsylvania. Phico Insurance Co., which won an order to stay pending litigation as of May 3 in Hartford Superior Court, provides medical malpractice insurance. William F. Gallagher, of New Haven’s Gallagher & Calistro, is waging actions against HMOs and psychiatrists on behalf of the estate of Otto Brown, as a result of the Connecticut lottery shootings, and some of those cases are impacted by a stay, he confirmed. In addition Legion Insurance Co., which also handles malpractice insurance, has stayed litigation pending the insurer’s rehabilitation. Joseph P. Friedler, of the New Haven offices of Stephen G. Friedler, said he has a case that is stayed due to Legion’s difficulties. Litigants have been notified that making further filings would be a violation of the stay order. Friedler said the order does not make it clear how an unfilled claim can properly be preserved during the stay period. Tanski, the inside counsel for the Guaranty Fund, said there were multiple reasons for the companies’ fiscal difficulties, and that it is not simply attributable to problems linked to Sept. 11 or the reinsurance markets. Richard A. Bieder, of Bridgeport’s Koskoff, Koskoff & Bieder, confirmed that his firm has at least one case held in abeyance by an insolvency stay. In his view, the problem is familiar — 15 years ago insurers were in trouble due to bad real estate investments, and now they’re suffering due to bad stock market investments, he said. “Cyclically insurance companies have been going out of business. Insurance departments of the various states are supposed to be watching to prevent this from happening. “One of two things happens when these companies go out of business. Either the companies and their auditors — inhouse or outhouse — are lying to the insurance commissioner when they give status reports, as to the economic solvency of the carriers, or they’re telling the truth, and the insurance commissioners are turning a blind eye to what they see. It’s very distressing,” said Bieder, adding, “No insurance company should go out of business in a way that people who paid premiums are not protected.”

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