NASBP Update on Status of First Sealord Surety Liquidation

For the past year NASBP has been updating its membership on the latest information concerning the liquidation of First Sealord Surety, Inc. (FSSI), which became effective on February 8, 2012. NASBP recently followed up with the Office of Liquidations, Rehabilitations and Special Funds of the Pennsylvania Insurance Department (PID) concerning the current status of the liquidation, one year after the fact.

As previously reported by NASBP, the PID stated on its website that the deadline for filing proofs of claim was October 5, 2012. The PID noted that it could take several years before all of FSSI’s assets were collected and distribution amounts could be determined. At that time, the PID stated that FSSI producers with claims for earned commissions should complete a proof of claim form.

A number of NASBP producers that have filed proofs of claim for earned commissions are now, understandably, interested in the status of those claims. In a conversation on January 16, 2013, with a representative of the PID’s Liquidator’s office, NASBP learned the following information:

• The Liquidator is in the process of evaluating and processing claims.
• Even though the filing deadline for proofs of claim was October 5, 2012, if there is a valid reason, the Liquidator will still accept a late claim although it will be considered “late filed.” A late-filed claim may be considered at a lower priority level.
• Many producers’ claims for commission have probably already been evaluated.
• The complaint filed by the Liquidator against FSSI’s former directors and officers, seeking damages in excess of $7.87 million, could potentially add assets to the eventual pay out.
• The Liquidator does not currently know what amount the payments will be or when they will be made. Payments are not likely to occur for two or three or more years, and such payments will likely be pennies on the dollar.

In fall 2012 the Pennsylvania Insurance Commissioner, in his capacity as Statutory Liquidator for FSSI, filed a complaint against certain former directors and officers of FSSI and former counsel to FSSI for, among other things, breach of fiduciary duties, negligent misrepresentation, civil conspiracy, professional negligence, and voidable preference payments. The complaint alleges that FSSI’s former officers and directors diverted millions of dollars to a sister company, Broadlands Financial Group; transferred contractors’ cash collateral into operating expense accounts; misrepresented FSSI’s reserve position to the PID; under-reserved for known claims expense obligations; and over-reserved for anticipated subrogation and salvage recoveries.

Of course, the Liquidator filed this lawsuit in order to recover the companies’ assets that were allegedly wrongfully diverted. The Liquidator will ultimately pay approved claims based on funds available. The amount of the payment will depend on the assets available and will likely not be made for several years as the Liquidator seeks to recover additional assets.