VA SCC Temporarily Stops Payments on ROA Claims

Virginia’s State Corporation Commission announced that it has temporarily stopped the payment of certain claims by Reciprocal of America (ROA) – a Virginia-domiciled reciprocal that was placed into receivership on January 29, 2003. The company has not been writing new or renewal policies since the receivership action.

The decision follows a petition by ROA’s deputy receiver, Virginia Insurance Commissioner Alfred W. Gross, that an “an order of liquidation” be entered upon the company, as a result of its recently filed statement with the SCC that showed the insurer is insolvent by more than $200 million. The order temporarily suspends the payment of all hospital professional liability insurance claims to direct policyholders of ROA. In a separate statement Gross indicated that, “Given the updated financial picture, the uncertainties regarding potential future claims liability are so great there was no choice but to stop paying hospital malpractice claims.”

The announcement confirmed, however, that “workers’ compensation insurance claims will continue to be paid. Under Virginia insurance law the filing of an order of liquidation would trigger the steps for policyholder protection under various state guaranty funds. The SCC’s bulletin said, “the purpose of such is to provide a safety fund, in limited amounts, for policyholders in each state, if ROA cannot pay any portion of a policy claim. But, such protection is limited to claims arising within three months of such a trigger in Virginia and even shorter periods in many other states. Therefore, the deputy receiver believes that ROA’s policies must be cancelled before the safety net is eliminated.”

It also noted that “The temporary injunction ordered by the SCC was requested in a petition filed last week by the special deputy receivers of three Tennessee-domiciled risk retention groups – Doctors Insurance Reciprocal (DIR), American National Lawyers Insurance Reciprocal (ANLIR), and The Reciprocal Alliance (TRA). ROA is the reinsurer for these three companies that are under receivership in Tennessee.

The SCC directed the deputy receiver of ROA to respond to the temporary injunction on or before May 7, 2003. The deputy receiver of ROA is to respond to the merits of the petition by May 16, 2003. The Commission said, ‘We find it sufficient to grant a temporary injunction due to the asserted danger and need for protection of the policyholders, subscribers, and third-party claimants.” The Commission did not make any determination as to the merits of the joint petition or the likelihood of success on the merits.