Parent Firms of Failing Insurers Face Lawsuits

As insurance insolvencies have climbed the past few years, more regulators are suing the parent companies, officers, directors and accountants of the failed companies.

The lawsuits generally allege that wrongful acts or errors and omissions by these parties have contributed to the demise of a number of insurers.

The lawsuits are designed primarily to recover money to pay the claims of policyholders and creditors, regulators say.

Precisely how many such lawsuits have been filed is not known, but attorneys and regulators say there are at least several dozen nationwide.

Kevin Foley, the deputy superintendent in the New York Insurance Department, who also oversees the state’s liquidation of failed insurers, said he is looking harder at who is responsible for insolvencies. Foley said New York in the past few years has filed about six such lawsuits against parent companies, directors and officers of companies, and outside accountants.

“More liquidators are doing post-mortems,” Foley said. “Liquidation is a growing business and people are getting more sophisticated about it.”

Between 1984 and 1988, 90 property-casualty insurers failed, compared to 84 in the 14 years between 1969 and 1983. Analysts estimate that the cost of recent failures may be as high as $20 billion. When insurers become insolvent it is up to solvent insurers in their states to pay the outstanding policyholder claims by contributing to guaranty funds.

Foley said he has focused more on the parent companies that own insolvent insurers and has been filing lawsuits against some of them.

“The notion of holding parents responsible is very high on the agenda of all regulators,” Foley said.