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The Home Insurance Co. hasn’t been writing new policies since 1995, but, declared insolvent on Friday the 13th, its failure is expected to have an impact on Pennsylvania policyholders that will top that of the Reliance Insurance Co. collapse. The liquidation means that the insurer’s asbestos, environmental and legal malpractice clients will have to turn to the Pennsylvania Property & Casualty Insurance Guaranty Association to cover claims against them and that they could ultimately wind up responsible for liability in excess of amounts paid by the association. The Home also wrote workers’ compensation policies. The Pennsylvania Workers’ Compensation Security Fund would provide claim payments to workers entitled to benefits from the troubled company. According to PPCIGA claims manager Stephen Perrone, The Home is carrying more than $200 million of outstanding liability in Pennsylvania. Perrone said the effect of the insolvency would be greater than that of Reliance. The insurer, which was founded in New York, was incorporated in New Hampshire at the time of its demise. The New Hampshire Superior Court on March 5 had appointed that state’s insurance commissioner, Paula T. Rogers, rehabilitator of The Home. But after Rogers on May 8 asked that the company be liquidated, the court concluded that further attempts to rehabilitate it would be futile. Because the insurer has been declared insolvent, all litigation against it and its policyholders has been stayed for 90 days. Perrone said that after the 90-day stay ends, PPCIGA will defend claims against The Home and its insureds. Should a policyholder suffer an adverse verdict that exceeds the $300,000 statutory maximum coverage that PPCIGA provides, the prevailing party could try to squeeze any remaining money owed from the insured. Perrone said that although the policyholder would be a creditor of the bankrupt insurer’s estate, PPCIGA would most likely defend the insured in a prevailing party’s execution action. According to Perrone, PPCIGA has successfully defended such claims against physicians by arguing that the defendant doctor had coverage, but because of the insolvency, a gap existed between the judgment against him or her and the funds available to pay it, and that the insurer’s estate was responsible for the money owed. The Home, which was founded in 1853, ran into trouble when it faced a heavy flow of environmental and asbestos litigation, Perrone said. “The company in the most recent history decided they wanted to write [insurance policies for] all of the Fortune 500 companies, and it was probably a bad mix for them because they ended up with a lot of environmental and asbestos claims,” Perrone said. In a news release, the New Hampshire Insurance Department also cited asbestos and pollution losses as precursors to The Home’s financial woes. And the release added workers’ compensation liabilities to the list of contributing difficulties. “Commissioner Rogers engaged an international actuarial consulting firm to assist her in evaluating The Home’s loss reserves,” the news release states. “After reviewing their most recent analysis, which included updated payment activity on asbestos and pollution losses, and after considering significant uncertainties relating to asbestos and workers’ compensation reserves and the collectibility of reinsurance recoverables, the commissioner determined that The Home’s liabilities exceeded its assets and that The Home is therefore insolvent.” During the 1990s, The Home handled a lion’s share of the legal malpractice insurance issued throughout the United States, Perrone said. The company was once endorsed by the Pennsylvania Bar Association, as well as associations of other states. But according to professional liability defense attorney Jeffrey McCarron of Swartz Campbell, the insurer lost the PBA’s endorsement in the mid-1990s and has not been a legal malpractice insurance market contender since that time. Mike Averill, who serves as the New Hampshire Insurance Department’s representative at The Home, told The Legal Intelligencer that actuaries for the department had not evaluated whether legal malpractice claims contributed to the company’s downfall. McCarron noted that the insurer has been in a runoff situation for a number of years in the malpractice arena. When a company enters runoff mode, no new policies are written and its existing policies are not renewed. Essentially, runoff indicates the winding up of a company’s business. Accordingly, McCarron said he thought most legal malpractice claims against the company had been resolved in Pennsylvania, though some substantial cases are still on the books. McCarron is handling suits against eight to 10 Home policyholders. McCarron said he was not surprised by the insolvency in light of the insurer’s declining financial situation. He said his concern was that lawyers could find themselves with insufficient malpractice coverage. Swartz Campbell partner Curtis Cheyney said he grew up with The Home and is saddened by its demise. Cheyney’s father ran the company’s Philadelphia claims office during the 1970s and 1980s, the attorney said. Cheyney said he remembered visiting The Home’s New York City headquarters — at one time a source of pride for the insurer, located on Maiden Lane in the city’s financial district — as well as marveling at the company’s impressive collection of old fire engines that has since been sold along with its real estate. The attorney, who has handled matters for The Home since he became a lawyer in 1968, described the company as a pioneer in the insurance industry, particularly in the professional liability arena. The Home was part of the fabric of the insurance industry in the United States, Cheyney said, and the company’s demise is nothing short of a tragedy. “It’s disappointing, but it was heading this way for some time,” Cheyney said. He cited rehabilitation attempts as indicators of the company’s worth. The Insurance Run-Offs Newsletter, provided to PPCIGA by the New Hampshire insurance commissioner, states that worldwide insurance provider Zurich Insurance Co. took over The Home in 1994. Perrone told The Legal Intelligencer that when The Home merged with Zurich, that company needed to place a good deal of money into The Home’s surplus. The Home then went through its own money and that of Zurich before being placed in liquidation, Perrone said. The claims manager said he expects a lengthy resolution process given the company’s outstanding liabilities in Pennsylvania. Pennsylvania is home to the most money owed by The Home, Perrone said. “[The insolvency] means that the insurance-paying public of Pennsylvania is going to end up having to pay for it,” Perrone said. “It comes out of all of our premiums. And we expect the 2 percent assessment [on premiums] to continue into the foreseeable future.” He said that the guaranty association is funded by assessments of up to 2 percent of member insurers’ premiums. The amount received from each company depends on the amount of business the insurer writes in Pennsylvania, Perrone said. And companies may pass the additional financial burden on to their customers. The 2 percent assessment went into effect in 1998 when medical malpractice insurers PIC Insurance Group and PIE Mutual Insurance Co. began tumbling toward insolvency, Perrone said. Perrone said that The Home’s insolvency should not have any long-term effects on Zurich, though the company may sport a black eye for a while. According to Perrone, PPCIGA does not yet know how many individual files it will have to handle in the wake of The Home’s insolvency. Thomas Leonard of Obermayer Rebmann Maxwell & Hippel said that asbestos industry insurers like The Home that get into trouble may lend weight to calls for litigation reform in that industry. The Fairness in Asbestos Injury Resolution Act of 2003, introduced by Sen. Orrin Hatch, R-Utah, is being considered by the Senate Judiciary Committee. Leonard speculated that the legislation, which would limit liability in asbestos claims, has a 50/50 chance of success.

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