RCF&P Attorneys Represent First Solvent Insurer to Implement Commutation Plan Under Rhode Island’s Restructuring Act
Since December 2009, RCFP’s R. Kelly Sheridan and Daniel E. Burgoyne have represented GTE REinsurance Company, Ltd. (“GTE Re”) as Rhode Island counsel in implementing the first commutation plan under Rhode Island’s Voluntary Restructuring of Solvent Insurers Act, R.I.G.L. 1956, Title 27, Chapter 14.5 (“Restructuring Act”).
The Restructuring Act permits a solvent insurer in run-off to extinguish its liabilities for past and future claims of its creditors and then terminate its business. The GTE Re commutation plan is the first time the Restructuring Act—the only statute of its kind in the United States—has ever been implemented domestically, although similar statutes exist in Bermuda and the United Kingdom.
The Restructuring Act serves the valuable public purposes of eliminating inefficiencies that arise when a solvent insurer remains in run-off for decades, processing ongoing claims while receiving no new income from premiums. By providing a mechanism to satisfy ongoing obligations to creditors with an actuarially-determined lump-sum payment, and thereafter terminate business operations, the Restructuring Act allows an insurer to release capital that would otherwise remain stranded in the company for years, and perhaps decades. The Restructuring Act also provides a benefit to creditors, by providing for the certainty of an early payment, and eliminating the risk of unfair preferences amongst creditors.
GTE RE, a resinsurer, was formed as a Bermuda corporation in 1976. In 1990, GTE RE ceased writing new business and entered run-off. RCFP was retained in late 2009 to represent GTE RE in proceedings before the Rhode Island Department of Business Administration (“DBR”) to re-domicile the company to Rhode Island from Vermont, its then-domicile, and to obtain DBR approval for the anticipated commutation plan.
In June 2010, GTE RE officially re-domiciled to Rhode Island. Having received DBR approval of the commutation plan, it filed a petition with the Superior Court seeking (1) to convene a meeting of creditors to vote on the commutation plan, and (2) assuming a successful vote, to implement the commutation plan.
In December 2010, following a successful vote at the meeting of creditors, GTE Re moved for an order confirming the successful vote and implementing the commutation plan. Shortly before the hearing, two creditors asserted objections based upon alleged violations of the Contracts and Due Process Clauses of the U.S. and Rhode Island Constitutions. However, after an accelerated schedule of discovery, briefing, and oral argument, Superior Court Associate Justice Michael A. Silverstein overruled the creditors’ objections and upheld the Constitutionality of the Restructuring Act. The 44-page decision (as amended) can be found at the following link to the Superior Court’s website:
- Amended Decision, In Re GTE Reinsurance Company, PB 10-3777 (R.I. Super. nunc pro tunc to Apr. 25, 2011)
Shortly following issuance of Judge Silverstein’s April 2011 Decision, the Court granted GTE RE’s request for an Implementation Order. The objecting creditors then filed an appeal from the April 2011 Decision and Implementation Order. However, their objections have been settled and the appeal was dismissed on February 6, 2012.
The Implementation Order set forth various deadlines for creditors to submit their claims and for GTE Re to either "agree" the timely-filed claims or submit them to an arbitration process. At present, all claims - including those of the objecting creditors - have been resolved and paid. GTE Re anticipates that the commutation plan will be fully implemented, and the commutation proceeding terminated, in the first half of 2012.