Well it finally happened — a state insurance commissioner finally stood up and spoke out — albeit in a private letter to Senate Judiciary Committee Chairman, Senator Joseph Biden.
Delaware Insurance Commissioner, David Levinson, wrote to urge that Biden defend the civil racketeering laws which authorize insurance commissioners to bring triple-damage lawsuits against defrauders of insurance companies. Powerful business lobbies want civil RICO weakened or repealed.
Levinson’s letter focused on the “epidemic” refusal of reinsurance companies to pay “legitimate debts to insolvent insurance companies.” Overshadowed by the gigantic savings and loan bank failures, the story of insolvent insurance companies, due to their own corruption or mismanagement, has been little told.
Unlike the access of 5 & Ls to federal deposit insurance, these insolvent insurance companies are supposed to be able to rely on reinsurers. So what are the reinsurers doing — they are holding a meeting soon in London — home of Lloyd’s of London — on the subject of “how to avoid paying insolvent insurance companies.”
This outrages Levinson. His predecessor started a lawsuit years ago against the representative of 70 reinsurers for failure to pay an insolvent Delaware insurer. The lawsuit dragged on and on while the Delaware Guaranty Association — a state agency — emptied its coffers to pay claims. In Levinson’s words: “millions of dollars of outstanding claims could not be paid. Many hundreds of elderly nursing home patients were unable to pay their nursing home bills. Each month many of them met their deaths with this obligation hanging over them and their families.”
The reinsurers would not even meet the Insurance Department to discuss the dispute. Levinson observed that reinsurers count on repeated procedural delays “as a matter of course.”
Enter the civil RICO lawsuit which Levinson filed against each reinsurer. “Within a matter of days,” wrote Levinson, “representatives of the reinsurers were at the bargaining table. Within a matter of weeks the entire matter was resolved. The General Fund of the State of Delaware was reimbursed for its losses. All outstanding claims were paid.
Gearing his letter to Big Type, the Commissioner told Biden: “NONE OF THESE RESULTS WOULD OR COULD HAVE OCCURRED IF CIVIL RICO WAS MODIFIED AS IS CURRENTLY BEING PROPOSED.”
“These are not ‘simple commercial matters’ as reinsurers would have you believe,” Levinson warned the Senator. “These are real human beings, thousands and thousands of them, who are suffering from the conspiracy among many reinsurers throughout this world not to pay claims to receivers of insolvent insurers.”
Once again, the arcane fraternity known as reinsurers was lucky. On receiving a copy of this letter, a business writer for a major national newspaper told me that he didn’t understand the subject and therefore couldn’t write up the Levinson letter.
Oh, yes… one final twist from Levinson: “In one Delaware insolvency,” he added, “in which many reinsurers throughout the world are involved, over a three year period the only reinsurer to pay its debts is the reinsurance company of the Peoples Republic of China. It might lead one to conclude that the communists are the only honest capitalists left,” noted the nonplussed Commissioner.