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National Home Insurance Co. v. Commonwealth6/10/1994
OPINION BY JUSTICE LEROY R. HASSELL
The primary issue that we consider in this appeal is whether the State Corporation Commission is a court of competent jurisdiction within the meaning of the Federal Liability Risk Retention Act of 1986, 15 U.S.C. §§ 3901 through 3906.
I.
National Home Insurance Company (NHIC) is a risk retention group created in accordance with the Product Liability Risk Retention Act of 1981 that was amended by the Liability Risk Retention Act of 1986 (The Act). A risk retention group is a legal entity organized for the primary purpose of spreading the risk of liability exposure among its members. See 15 U.S.C. § 3901(a)(4)(A) through (C).
NHIC is chartered and licensed by the State of Colorado and issues liability insurance coverage to residential home builders. NHIC conducts business in 48 states and the District of Columbia.
The builders are required to be members of the Home Buyers Warranty Program that is administered in Virginia by the Home Buyers Warranty Corporation II. NHIC is one of several companies that belong to the "family" of Home Buyers Warranty corporations. These corporations provide administrative, management,
marketing, underwriting, and warranty services related to the insurance sold to residential builders.
NHIC insures its builder members against claims made by homeowners for losses caused by defects in construction and workmanship in homes constructed by builder members. The builder members are the insured parties under the warranties and the individual home owners are the beneficiaries.
In preparing NHIC's audited financial statements for the year-end 1991, Coopers & Lybrand, an accounting firm, discovered that NHIC had failed to collect sufficient premiums from the policies it had sold to pay for claims made. Accordingly, Coopers & Lybrand's staff found, and two other accounting firms retained later by NHIC confirmed, that NHIC's deficit in unearned premium reserves constituted a liability of $9,626,381. This additional liability reduced NHIC's policyholder surplus to a negative $16,918,955 as of December 31, 1991. NHIC is required to maintain a positive surplus of at least $1,050,000 in accordance with Colorado's minimum surplus requirement.
Coopers & Lybrand stated, in its 1991 audit report submitted to NHIC's board of directors, that there is "substantial doubt about [NHIC's] ability to continue as a going concern" because of the large premium deficiency. NHIC reported the deficit in unearned premium reserves to the Colorado Division of Insurance, and it made a determination of delinquency and entered an order of direct supervision against NHIC.
The Colorado Division of Insurance entered an order of summary suspension, finding that NHIC was operating in "an impaired and/or insolvent financial condition," which was "a result of [NHIC's] deliberate and willful failure to comply with Colorado law." Subsequently, the Colorado Division of Insurance issued an order requiring that NHIC immediately cease and desist from the further transaction of the business of insurance unless it complied with certain conditions designed to restore NHIC's surplus over a period of time. This order permits NHIC to continue issuing new insurance contracts to builder members even though it is "financially impaired and/or insolvent."
In March 1993, the Virginia Bureau of Insurance received NHIC's 1992 annual statement that reflected the negative surplus. Shortly thereafter, the Bureau of Insurance filed pleadings with the Clerk of the State
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