O&B Successfully Intervenes on Behalf of Psychiatrists' Purchasing Group, Inc. in Legion Insurance Company Insolvency Proceedings
September 2003

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Effective April 1, 2002, Legion Insurance Company was placed into rehabilitation by the Commonwealth Court of Pennsylvania. Prior to that time it had acted as a "fronting" insurance carrier—issuing policies but not taking any underwriting risk. That risk was assumed 100% by reinsurers that were brought to it by its policyholders. Usually, Legion's policyholders negotiated terms and conditions of reinsurance directly with reinsurers, arranged for their policies to be issued, premiums collected and claims to be handled, all without any involvement from Legion, and often before Legion had ever been selected as fronting carrier.

Shortly after Legion was placed into rehabilitation, the Pennsylvania Commissioner of Insurance petitioned the Court for an order of liquidation. The petition was opposed by Legion's parent company, as well as a number of policyholders, including Psychiatrists' Purchasing Group, Inc. ("PPG"), which was represented by Terence P. Cummings of Ohrenstein & Brown. The court granted PPG's application to intervene in the proceedings and, after holding a number of evidentiary hearings, granted PPG and other policyholder intervenors direct access to Legion's reinsurance. In essence, the court recognized that the unique nature of Legion's business warranted the grant of direct access to reinsurance to those policyholders who could demonstrate that Legion acted only as a "front." A copy of the Court's June 26, 2003 opinion is available on this Web site.

After the court issued its opinion, the Commissioner of Insurance unsuccessfully sought reargument, and the court entered an order of liquidation on July 25, 2003 that continued the rights of PPG and similarly situated policyholders to have direct access to reinsurance.

The Pennsylvania Commissioner of Insurance has appealed to the Pennsylvania Supreme Court from both the June 26, 2003 opinion and order and from the July 25, 2003 liquidation order to the extent that policyholder-intervenors were granted direct access to reinsurance. Pending the appeal, the Commissioner asked the court to stay the effect of the two prior orders. In a lengthy opinion dated September 18, 2003, the court denied the application for a stay.

This litigation represents a significant victory for the policyholders of an insolvent fronting insurer. Unless reversed on appeal, Ohrenstein & Brown's lawyers will have participated in bringing about a result that is a landmark for policyholders and purchasing groups. While other policyholders successfully intervened in the proceeding, those other policyholders are major corporations—American Airlines, Pulte Homes' Rural Metro Corporation. PPG, represented by the firm's lawyers, is the only policyholder intervenor to represent thousands of individual insureds, whose right to direct access to reinsurance has been recognized by a court in this ground-breaking decision.

(Prior results do not guarantee a similar outcome.)