On July 2, 2012, the Illinois Department of Insurance (IDOI) entered an Agreed Order of Rehabilitation against Lumbermens Mutual Casualty Company and American Manufacturers Mutual Insurance Company, which is the part of the Lumbermens Mutual Group formerly known as Kemper (collectively, “Lumbermens”). Under the order, IDOI’s Director will serve as Lumbermens’ Rehabilitator with powers to restructure Lumbermens’ insurance business. From this point forward, Lumbermens will no longer take on any new insurance obligations, issue any new policies, or renew any existing policies.
In reality, Lumbermens has not been writing new policies or renewing existing ones since early 2003, when Lumbermens began operating pursuant to a number of corrective orders issued by the IDOI. The terms of these orders are confidential. However, since 2004, it is known that Lumbermens has essentially been operating in “run-off” (i.e., paying existing and new policyholder claims only).
In light of the Rehabilitation Order, various State Guaranty Funds will now become involved in Lumbermens’ run-off process, as it is anticipated that the IDOI and the Rehabilitator will prepare Lumbermens financially for an orderly liquidation process. At some point, the claim handling function for policyholders will be transferred to the individual State Guaranty Funds. For many corporate policyholders, this transition will effectively eliminate all coverage under these policies because most Guaranty Funds have relatively low-net-worth limitations ($25 - $50 million), after which payment of claims is unavailable.
When, as anticipated, the Director determines that Lumbermens should be liquidated, the Director will seek an order of liquidation from the Illinois state courts. Once issued, Lumbermens will be turned over to the Special Deputy Receiver for Illinois, who will be tasked with marshalling all available assets and establishing an orderly claims process for all policyholders and claimants.
In due course, all Lumbermens policyholders will be mailed a Proof of Claim form that they will have to complete and return to the Receiver. Depending on the timing, the Proof of Claim may be returned to the Receiver or to a particular State Guaranty Fund. As with bankruptcy proceedings, at some point, the Receiver will establish a claim deadline on or before which all Proofs of Claim must be submitted. After that date, all future claims will be barred by law (unless the Liquidator grants the claimant permission to file late; even then this late-filed claim will be paid only after all claims made by the deadline are paid).
In the event that a policyholder knows it has a loss, but the specific amount has not been set, then that policyholder has a “contingent claim.” In order to participate at the same priority level as non-contingent claimants (highly recommended), the policyholder must first file a Proof of Claim by the established deadline and then pay the loss “in full” and provide evidence of that payment by the “Contingent Claim Date,” which will be set by the Illinois Court supervising the liquidation process (this date will come after the deadline for filing Proofs of Claim).
Finally, policyholders who have resolved claims with Lumbermens in the recent past may be subject to a “claw back,” whereby the Rehabilitator may seek to set aside any payment received as a “preference.” The preference period runs two years from the filing of the rehabilitation complaint.
What should you do to protect the viability of claims against Lumbermens?
Here are four tasks (not all simple) that you should complete as soon as possible:
- Identify all known and potential claims that may be asserted against Lumbermens Mutual Casualty Company and American Manufacturers Mutual Insurance Company. Pay special attention to companies or businesses that you may have inherited, and determine if they have outstanding or potential claims against Lumbermens.
- Take note of all liquidation deadlines (i.e., Proof of Claim and Contingent Claim deadlines) and claim processing procedures of the IDOI Receiver and your State Guaranty Fund. If you are not sure about these deadlines, contact your insurance broker, your coverage counsel, your State Guaranty Fund, or the IDOI. Lumbermens website also contains useful information and can be accessed at www.lmcco.com.
- Gather all information concerning Lumbermens Mutual Casualty Company and American Manufacturers Mutual Insurance Company policies purchased or inherited and the claims asserted or to be asserted thereunder. For claims, gather all information regarding the nature of the loss, the dates of the loss, the cause of the loss, and the amount or anticipated amount of the loss. If you have questions regarding how to submit a Proof of Claim, contact your coverage counsel.
- Gather information about any settlement agreements entered into with Lumbermens in the past two years.