Motion to Approve Compromise under Rule 9019 Filed by Trustee Richard D. Myers. (Bird, James) (3/15/19)
Settlement 1 - IAT
Acceptance Insurance Company (AIC), in Rehabilitation, a Nebraska corporation, is the wholly owned subsidiary of the Debtor (AICIQ), and was placed in rehabilitation pursuant to an order entered by the District Court of Lancaster County, Nebraska in 2008.
Prior to 2001, Acceptance Indemnity Insurance Company (AIIC) was a subsidiary of Acceptance, and Acceptance Casualty Insurance Company (ACIC) was a subsidiary of Debtor.
In 2001, Debtor and Acceptance entered into a Purchase and Sale Agreement whereby the books of business and all outstanding shares of AIIC and ACIC were sold to McM Corporation, a North Carolina corporation. Harco National Insurance Company is an affiliate of McM (AIIC, ACIC, McM and Harco are collectively the “Insurer”).
Acceptance and Debtor (collectively the “Reinsurer”) agreed to provide certain indemnifications to the Insurer, and reinsured portions of business written by AIIC and ACIC. Acceptance also provides administration for such reinsured policies.
Acceptance has deposited assets into a trust account with U.S. Bank National Association, as Trustee (the “IAT Trust”), to secure Reinsurer’s future obligations under the reinsurance agreements.
Reinsurer and Insurer have agreed to finally settle and release their respective obligations under the Purchase Agreement and to terminate, finally settle and commute their respective obligations and liabilities under certain agreements.
Acceptance (Debtor’s subsidiary in rehabilitation) has offered to pay from the IAT Trust and Insurer has agreed to accept a payment to AIIC in respect of Reinsurers’ past, present and future obligations and liabilities under the Terminated Contracts.
According to Acceptance, this settlement should enhance Acceptance’s capital and surplus. Acceptance plans to seek approval of the Director of Insurance of the State of Nebraska and the District Court to allow Acceptance to make principal payments related to Debtor’s Surplus Note.
Debtor, as an original party (before the bankruptcy was filed) to the Purchase Agreement and certain of the Terminated Agreements, desires to sign a Commutation and Release Agreement with the Insurer (the “IAT Settlement”). The Commutation and Release Agreement to be signed by the Trustee will not create any additional liability for the Debtor or the Debtor’s bankruptcy estate and, upon approval of the Director and the District Court, will result in principal payments on the Surplus Note.
Such Commutation and Release Agreement is not yet finalized but will substantially have the terms discussed above. The Trustee requests this Court’s authority to execute such Commutation and Release Agreement (or similar agreement(s)) when the final agreement is negotiated by Acceptance (Debtor’s subsidiary in rehabilitation).
Settlement 2 – Enstar
Prior to 2000, Redland Insurance Company (“RIC”) was a subsidiary of The Redland Group, Inc., a former now dissolved subsidiary of Debtor.
In 2000, Debtor entered into a Stock Purchase Agreement whereby all outstanding shares of RIC were sold to Clarendon National Insurance Company.
Acceptance agreed to provide certain indemnifications and reinsured certain portions of business written by RIC and Clarendon. Acceptance also provides administration for such reinsured policies.
Acceptance has deposited assets into a trust account with U.S. Bank National Association, as Trustee (the “RIC and Clarendon Trust”), to secure its future obligations under the reinsurance agreements.
In 2001, Debtor and Acceptance sold certain lines of business to Clarendon and Insurance Corporation of Hannover (“ICH”), an affiliate of Clarendon. Acceptance agreed to provide certain indemnifications and reinsured certain portions of this business.
In 2006, ICH’s name was changed to Praetorian Insurance Company.
In 2007, QBE Insurance Group acquired certain Praetorian Financial Group Inc. entities including RIC and Praetorian. At such time, RIC and Praetorian were no longer affiliates with Clarendon.
In 2010, RIC was merged with and into its affiliate, Praetorian. In 2011, Praetorian was sold to Enstar Group Ltd.
Enstar and Acceptance are negotiating a deal to unwind and terminate the RIC and Clarendon Trust which would include commutation and release agreement(s) with Clarendon and Praetorian (the “Enstar Settlement,” and collectively with the IAT Settlement, the “Settlements”).
These commutation and release agreement(s) are not yet finalized but will be similar to agreement(s) under the IAT Settlement. The Trustee further requests this Court’s authority to execute such agreement(s) when finally negotiated by Acceptance (Debtor’s subsidiary in rehabilitation). Similar to the IAT Settlement, the agreements to be signed by the Trustee related to the RIC and Clarendon Trust and the Enstar Settlement will not create any additional liabilities for the Debtor or the Debtor’s bankruptcy estate and will result, upon approval of the Director and the District Court, in principal payments to the Debtor’s estate under the Surplus Note.
Potential Result
The Settlements will allow Acceptance (the Debtor’s subsidiary insurance company in rehabilitation) to resolve certain of its liabilities with IAT, Enstar and others, including without limitation allowing the release of certain trust funds to Acceptance. Upon approval of the Director and the District Court, Acceptance will then provide distributions on its Surplus Note obligation to the Debtor’s estate. No additional liability will result to the Debtor’s estate, and, in fact, significant potential liabilities will be resolved. Further, such Settlements will accelerate distributions from Acceptance to the Debtor’s estate, which in turn will accelerate potential distributions to creditors of the Debtor’s estate.
Source: PACER [Docket 602]
