Judge Kenneth R. Freeman, Case BS061974 2022-10-19 Tentative Ruling

Judge: Kenneth R. Freeman, Case: BS061974, Date: 2022-10-19 Tentative Ruling

Case Number: BS061974 Hearing Date: October 19, 2022 Dept: 14

INSURANCE COMMISSIONER OF THE STATE OF CALIFORNIA V. SUPERIOR NATIONAL INSURANCE COMPANY AND CONSOLIDATED PROCEEDINGS

MOTION FOR ORDER OF CORPORATE DISSOLUTION

TENTATIVE RULING

Grant motion dissolving the corporate existences of the Insolvent Insurers

DISCUSSION

I. Background

On September 26, 2000, the Insurance Commissioner was appointed as liquidator of the Superior National Insurance Companies, including Superior Pacific (“the Insolvent Insurers”), pursuant to orders appointing the Insurance Commissioner as Liquidator and Restraining Orders. Prior to their insolvency, the Insolvent Insurers entered into a number of reinsurance agreements with various reinsurers to reinsure their workers’ compensation obligations. In an effort to wind up the Insolvent Insurers’ affairs, the Commissioner has negotiated with reinsurers to commute reinsurance agreements, and to fully and finally resolve the obligations between the Insolvent Insurers and their reinsurers.

The Commissioner, in his capacity as Liquidator of the Insolvent Insurers, has repeatedly sought court approval under Insurance Code §1037 for various commutation and settlement agreements with various reinsurers and other entities. The Commissioner states that he has essentially completed the administration of the liquidation. The Commissioner further represents that all proofs of claims submitted against the estates have been adjusted or administered; all assets monetized and collected, and all administrative tasks have been or are in the final stages of completion. Pursuant to Insurance Code §1033, the Court on August 31, 2021 approved the Insurance Commissioner’s application for a final distribution of estate assets to claimants on all allowed claims for each Insolvent Insurer. The Court also, in that same order, terminated the liquidation proceeding and discharging the Commissioner as liquidator (pursuant to the same application).

II. The Commissioner now moves to dissolve the corporate existences of the Insolvent Insurers pursuant to Insurance Code §1017(a).

Insurance Code §1017(a) provides that “[i]n the commissioner’s application for an order for the liquidation of a domestic corporation, or at any time thereafter, the commissioner may apply for, and the court shall make, an order dissolving the corporation.”

In support of the application, the Commissioner has submitted the Declaration of Scott Pearce. Mr. Pearce is the Chief Estate Trust Officer with the California Insurance Commissioner’s Conservation and Liquidation Office (CLO). [Pearce Decl., ¶1.] He declares that he has had hands-on involvement in oversight and management of the liquidation of the five insolvent insurers Superior National Insurance Company, Superior Pacific Casualty Company, California Compensation Insurance Company, Commercial Compensation Casualty Company and Combined Benefits Insurance Company (collectively, Insolvent Insurers). [Id.] He makes his declaration in his official capacity as the Chief Estate Trust Officer of the CLO. [Id.]

Since 2003, Pearce has been the CLO employee responsible for the overall management of the Insolvent Companies in conservation and in liquidation. [Pearce Decl., ¶2.] He is also responsible for the management of books and records of the Insolvent Companies, and he has overall custody and control thereof. [Id.]

Pearce declares that he is authorized to make this declaration on behalf of applicant Insurance Commissioner of the State of California, in his capacity as Liquidator of the Insolvent Insurers (Liquidator). [Pearce Decl., ¶3.] He attests that the following statements are based on his personal knowledge, acquired through his direct involvement in the Insolvent Insurers’ liquidation. [Id.] At the same time, he refers to certain facts and events in his declaration based on information and belief and on records prepared by personnel at the CLO and kept in the ordinary course of CLO’s business. [Id.]

Pearce declares that at or around the time the Commissioner was appointed the Conservator and later Liquidator of the Insolvent Insurers, their parent company, SNTL Corporation (fka Superior National Insurance Group, Inc.), commenced a Chapter 11 bankruptcy proceeding in the United States Bankruptcy Court, Central District of California, Case No. SV-00-41099-GM (SNTL Bankruptcy). [Pearce Decl., ¶4.] As part of the plan of reorganization approved by the Bankruptcy Court, SNTL was acquired by JPMorgan Chase Bank (JPMorgan). [Pearce Decl., ¶5.] The acquisition included SNTL’s interest in and the net operating losses of the Insolvent Insurers. [Id.]

Pearce attests that at or around the same time, the Liquidator entered into a settlement and tax sharing agreement with SNTL and JPMorgan. [Pearce Decl., ¶6.] Under the agreement, JPMorgan became the sole owner of the net operating losses and the Insolvent Insurers joined with JPMorgan in the filing of consolidated returns. [Id.] Pearce declares that he has attached as Exhibit A a true and correct copy of the Settlement and Second Amended and Restated Consolidated Federal Income Tax Liability Allocation Agreement Between SNTL Corporation and Subsidiaries. [Id.]

Pearce attests that following the entry of the Court’s order dated August 9, 2021 approving the Liquidator's final accounting and distribution of assets, JPMorgan has requested the Liquidator to seek a formal dissolution of the Insolvent Insurers. [Pearce Decl., ¶7.]

As stated, the Court has already determined that the Commissioner, in his capacity as Liquidator of the Insolvent Insurers, has complied with his duties of administering the liquidation. The Liquidator had previously submitted his final report, and informed the Court of the winding down of the Insolvent Insurers’ business operations, the resolution of issues involving reinsurance (including the prior arbitration disputes with reinsurers and the prior Court approval of the various commutation of reinsurance contracts in excess of $100,000). The Final Report has also informed the Court of the release of statutory deposits to the Insurance Guaranty Associations (the IGAs’ duty to pay all of the Insolvent Insurers’ insurance policy liabilities was triggered by entry of the liquidation order).

In the motion, the Commissioner represents that the Commissioner has since completed the final distribution of assets of the Insolvent Companies, and expects to file the declaration of compliance after completing the escheatment of undelivered distribution. The Commissioner states that although the prior approval order provides for the closure of the Insolvent Insurers’ estates and the discharge of the Commissioner as liquidator upon the filing of the declaration of compliance, it does not address the consequences of disclosure.

Given the Commissioner’s representation that the administration of the insolvent insurers has been completed and the assets distributed, dissolution of the Insolvent Insurers’ existences will provide finality for the Liquidator as well as JP Morgan. This is the last step to be taken here. Given the Commissioner’s representations and the Court’s prior orders, §1017(a) now requires the Court to enter an order dissolving the corporate existences of the Insolvent Insurers. The motion should be granted, as prayed.