Lincoln General Insurance Company Enters Liquidation in Pennsylvania

The Insurance Commissioner of Pennsylvania has placed Lincoln General Insurance Company into liquidation in Pennsylvania. As a result, the Insurance Commissioner as Liquidator takes over the property, business, and affairs of Lincoln General; collects assets; resolves claims; and ultimately, distributes assets to creditors, including policyholders and claimants.

Lincoln General discontinued writing new business on February 9, 2009. It specialized in providing property and casualty insurance products to the transportation industry. Its main liabilities will likely relate to auto insurance, workers' compensation insurance, commercial liability insurance, and surety bonds.

Insurance companies are not subject to the federal bankruptcy law. Instead, the Pennsylvania Commonwealth Court will oversee the liquidation and ensure that the Liquidator complies with Pennsylvania law. Some common issues often arise in Pennsylvania insurance company liquidations.

Stays of Litigation The Order of Liquidation purports to stay litigation against Lincoln General not just in Pennsylvania, but also "elsewhere." Because the stay is issued by a state court in Pennsylvania, it does not actually stay litigation in other jurisdictions. Under principles of comity, however, some federal courts and courts in other states will stay litigation in their jurisdictions. Pennsylvania law provides that no action at law or equity shall be brought by or against the insurance company, whether in Pennsylvania or elsewhere, nor shall any such existing actions be continued after the Order of Liquidation. However, the Liquidator may intervene in actions inside and outside of Pennsylvania, if the court where the action is pending permits, and may continue the action.

Proof of Claim Process The Liquidator has established a proof of claim deadline of July 6, 2016. The proof of claim process is the manner by which policyholders and claimants can obtain a direct distribution from the estate of the liquidating insurance company. The Liquidator has established a proof of claim form to be completed. Claims filed after the deadline may be penalized by being granted a lower priority in the distribution scheme.

After the proof of claim form is filed, the Liquidator can approve or reject the claim. Moreover, the Liquidator will assign a priority to the claim in accordance with the priorities established in the liquidation statute. Administrative expenses of the estate are the highest priority...