This is a tangled web but definitely stinky, I am told...
AIG, Trenwick accused of offloading losses on pool
by ROBERTO CENICEROS
Published on Aug. 01, 2005 : AM CST
BOSTON—Nineteen insurers have filed a lawsuit alleging that American International Group Inc. and Trenwick America Reinsurance Corp. fraudulently inflated claims and schemed to leave them with $73 million in unsubstantiated reinsurance obligations.
The dispute, detailed in the complaint filed July 6 in Superior Court in Boston, stems from three reinsurance facilities in which Trenwick participated. Among other cedents, the pools reinsured several AIG units that provided coverage for workers compensation, occupational accident, and industrial aid insurance risks, the lawsuit states.
The reinsurers, in a participation agreement, granted Wakefield, Mass.-based LDG Reinsurance Corp. authority to act as managing agent for the three facilities and handle their claims, underwrite reinsurance risks and pay losses on behalf of the participants. LDG is now in runoff, according to a spokesman for its parent company, Houston-based hcc insurance Holdings Inc.
In 1997, LDG arranged for Chartwell Reinsurance Co. to participate as a member of each of the three facilities. Chartwell also agreed to act as a fronting reinsurer for the pools while ceding risks back to the facilities.
Trenwick acquired Chartwell in 2002 and assumed its responsibilities for the reinsurance pools, including the fronting of reinsurance risks, the lawsuit shows.
Trenwick America Corp.-the parent of Trenwick America Reinsurance, which has ceased writing business-filed for Chapter 11 bankruptcy protection on Aug. 20, 2003. But between December 2002 and August 2003, Trenwick America Reinsurance had issued at least 11 reinsurance contracts to the AIG units.
The lawsuit alleges that AIG manipulated Trenwick's fronting arrangement and formed a strategy to "co-opt Trenwick in the pursuit of unsupportable claims, payments and a restructuring of AIG's reinsurance coverage at the expense of plaintiffs."
Among other measures, the plaintiffs are seeking compensatory, punitive and exemplary damages.
Trenwick, because of its deteriorating financial position, colluded with AIG "to hijack LDG's rightful gatekeeper role in handling claims for the LDG facilities and to give an unfair advantage to AIG in passing off inflated loss reports in workers compensation and other books of business," the suit states.
The complaint alleges that AIG co-opted Trenwick by threatening its solvency. To do that, AIG demanded that Trenwick pay for $130 million in "grossly inflated" losses at a time when Trenwick was facing a financial crisis, the suit alleges.
The $130 million in alleged losses had an actual present value of more than $81 million, according to the lawsuit. The plaintiffs also allege that AIG and Trenwick entered into secret negotiations while Trenwick intentionally excluded LDG and prevented it from acting as a gatekeeper for the facilities.
LDG had already notified Trenwick that it was in negotiations with AIG on behalf of the reinsurance facilities. LDG had also notified Trenwick that Trenwick was required to defer authority to LDG and that facility members would not be bound by any settlement between AIG and Trenwick.
But the plaintiffs allege that AIG induced Trenwick to usurp LDG's role as managing agent by providing Trenwick funding for a $73 million promissory note to cover much of AIG's claims. In exchange, Trenwick agreed to assist AIG in pressuring plaintiffs to meet the insurer's demands, the plaintiffs allege.
Court records show that AIG and Trenwick eventually entered a commutation agreement under which LDG would pass AIG losses through to the three facilities. On Nov. 23, 2004, AIG sent each plaintiff a demand for payment of its alleged proportional share of the $73 million promissory note, the plaintiffs say in their lawsuit.
Arbitration over commutation has commenced in Massachusetts, court records indicate. The plaintiffs, meanwhile, allege in their lawsuit that AIG has consistently refused to provide LDG with records of its losses.
Several of the plaintiffs declined to comment, as did AIG.
The plaintiffs listed in the lawsuit include American Reinsurance Co., American United Life Insurance Co., Dorinco Reinsurance Co., First Allmerica Financial Life Insurance Co., Guardian Life Insurance Co. of America, Hartford Life Insurance Co., Houston Casualty Co., Insurance Corp. of Hannover, John Hancock Life Insurance Co., Monumental Life Insurance Co., Pan American Life Insurance Co., Phoenix Life Insurance Co., Reliance Standard Life Insurance Co., ReliaStar Life Insurance Co., Sun Life Assurance Co. of Canada, Swiss Re Life & Health America Inc. and Transamerica Occidental Life Insurance Co. |
