A February decision in an "interminable" environmental pollution case factored in the adverse reserve development that led the insurance company defendant's successor to exhaust its surplus.
Documents obtained by S&P Global Market Intelligence show that Pennsylvania Insurance Commissioner Jessica Altman on March 2 filed a petition to liquidate Bedivere Insurance Co., a Philadelphia-based insurer that is the surviving carrier from OneBeacon Insurance Group Ltd.'s 2014 divestiture of its runoff businesses.
Bedivere reported a policyholders' deficit of $277.5 million as of Dec. 31, 2020, compared with a surplus of $35.4 million a year earlier as restated to account for a December 2020 merger of Potomac Insurance Co., Employers' Fire Insurance Co. and Lamorak Insurance Co. into the company. The erosion largely resulted from a $283.4 million net loss that Bedivere attributed to approximately $290 million in unfavorable development of its asbestos and environmental reserves for prior accident years.
Employers' Fire and Lamorak had been subsidiaries of Bedivere. Potomac served as Bedivere's affiliated reinsurer, and it previously ceded business constituting the majority of the insurer's asbestos, environmental and certain other latent exposures to Berkshire Hathaway Inc.'s National Indemnity Co.
Potomac commuted its agreement with National Indemnity in November 2019 and received the remaining limit of approximately $22.8 million. The arrangement, which has roots in White Mountains Insurance Group Ltd.'s acquisition of CGU Insurance Group, had been in effect for more than 17 years. It originally provided $2.50 billion in coverage on pre-1987 asbestos and pre-1992 environmental claims in what ranked at the end of 2001 as National Indemnity's largest single assumption under a retroactive contract. Potomac also obtained an adverse development cover from Berkshire's General Re Corp. on the former CGU companies' behalf that remained in effect at year-end 2020.
The former OneBeacon companies had been subject to certain operating restrictions imposed by the Pennsylvania regulator dating back to the time of their sale. But, the liquidation petition stated, "Bedivere's assets and liabilities have reached the point that, taking into account administrative expenses, continued run-off under the supervision of the Commissioner is no longer feasible."
The petition also noted the adverse $25.2 million court order and a related $24.2 million in prejudgment interest awarded to explosives and ordnance manufacturer Olin Corp. in February by U.S. District Judge Jed Rakoff in a case originally filed in March 1984 against Lamorak, then known as Commercial Union Insurance Co. Bedivere said it "considered" Rakoff's order in developing its loss reserves.
Lamorak remained as the last insurer defendant after Olin previously entered settlements with primary insurer Insurance Co. of North America, now a Chubb Ltd. subsidiary, and a collection of excess insurers that included units of CNA Financial Corp., Chubb, Berkshire, Allianz SE and Münchener Rückversicherungs-Gesellschaft AG in München. Olin and Lamorak in 2018 settled their disputes over insurance coverage for environmental contamination at all but one of the implicated manufacturing sites for $120 million.
During the discovery process for claims related to the remaining site, Lamorak accused the plaintiff of misconduct in connection with the alleged concealment of separate settlements with a successor owner of certain of the sites. Olin claimed that it assigned its insurance rights to its successor and that the costs the successor incurred resulted from contamination released by the original owner's historical operations.
Both parties moved for summary judgment with Rakoff granting Olin's motion and denying Lamorak's in what he prayed would "Lord willing" bring the "interminable" litigation to an end. Documents filed March 6 suggest Rakoff's hopes will prove premature as Lamorak served notice of an appeal and requested a stay of the judgment's execution, noting that the amount constitutes approximately 16.2% of Bedivere's Dec. 31, 2020, assets.
"The case has consumed an inordinate amount of time and effort on the part of no fewer than three district judges (two of whom are now deceased, apparently from other causes), not to mention numerous judges of the Court of Appeals," the judge wrote in his opinion, which Altman attached by exhibit to her petition.
The financial challenges facing Bedivere and its former affiliates predated the judge's order. Independent auditor Mazars USA LLP issued an adverse opinion on the 2019 consolidated statutory financials of Bedivere, Lamorak and Employers' Fire, stating that the companies' estimate for unpaid losses and loss adjustment expenses "was not within a reasonable range."
Bedivere's stand-alone authorized control level risk-based capital ratio plummeted in 2019 to the mandatory control level at 51.6%, down sharply from 483.8% a year earlier. The company disclosed in its 2020 quarterly statements that it was working with the Pennsylvania Insurance Department on a corrective action plan.
The liquidation petition is pending before the Commonwealth Court of Pennsylvania. The boards of Bedivere and parent Trebuchet US Holdings Inc. have consented to the regulator's action.
