USVI to Pay Debts of Insolvent Real Legacy Insurance

Lieutenant Governor Tregenza Roach. (File photo)
Lieutenant Governor Tregenza Roach. (File photo)

Lt. Gov. Tregenza Roach has ordered the V.I. Insurance Guaranty Association to pay outstanding claims for Real Legacy claims, including replacement cost holdback claims.

Under V.I. law, the territory’s lieutenant governor serves as commissioner of insurance. Real Legacy has gone belly-up and, for the Virgin Islands, Roach is an ancillary receiver for the troubled insurer. According to Government House, he has the authority to direct the Insurance Guaranty Association to pay these claims from the territory’s Insurance Guaranty Fund.

The Insurance Guaranty Association is composed of nine private insurance company representatives, chosen with the approval of the V.I. insurance commissioner. It generally oversees the distribution of money in the Insurance Guaranty Fund if an insurer is unable to pay up.

This is the latest in several developments with Real Legacy. In October 2018, then-Lt. Gov. Osbert Potter announced there might be a problem with a foreign insurance company and said the V.I. government might take regulatory action against the company.

Multiple separate lawsuits have been filed against Real Legacy Insurance in the U.S. Virgin Islands since the beginning of September 2018.

Damage after Hurricane Irma in September 2017. (File photo)
Damage after Hurricane Irma in September 2017. (File photo)

In October, Potter said “over 94 percent of this foreign insurance company’s Hurricane Irma and Hurricane Maria claims in the U.S. Virgin Islands have already been paid” and the territory was working with the company’s “primary regulator” to protect V.I. policyholders.

That same month, the Puerto Rico Insurance Commissioner was granted a “Rehabilitation Order” for Real Legacy because of the need to reorganize the operations and restructure the financial condition of the company, without closing the company or placing it in liquidation.

“The Puerto Rico Commissioner of Insurance has taken over the operations of the company to protect the interests of policyholders with claims, creditors of the insurer, and the general public,” Potter said at the time.

The Puerto Rico Insurance Code requires that the rehabilitation of an insurer provides fair and equitable treatment in the payment of all claims, subject to a review by the Puerto Rico court in three months to determine if further action is required. Therefore, U.S. Virgin Islanders’ Real Legacy claims will be treated with the same level of priority as those of Puerto Rico residents. Any customer that is holding an outstanding claim can come to the Division of Banking, Insurance and Financial Regulation for assistance,” Potter said.

Back then, Potter said this bankruptcy-like action will not impact the U.S. Virgin Islands’ Insurance Guaranty Fund. That fund acts as a kind of government backstop in case private insurance companies fail and fail to pay. The fund is currently funded at $10 million dollars, reduced from $50 million to allow the government to put the rest of its funding into the current year’s budget.

In January, Guardian Insurance took over Real Legacy. But some storm-related claims apparently did not go to Guardian, which only took liability for policies renewed after Nov. 15, 2018.

Gov. Albert Bryan proposed increasing the fund’s cap to $20 million in his Fiscal Year 2020 budget. The budget document says current claims on the fund “resulting from the failure of Real Legacy Insurance” are about $16 million dollars.

“As the Commissioner of Insurance, I have the dual responsibility to regulate the insurance industry and to protect consumer interests. I do not believe that the association can summarily decide not to pay these claims when we have made a strong legal argument to the contrary.” Roach said in a statement this week.

“The association may believe that by taking such a position it is protecting the assets of the Guaranty Fund, but that is precisely why the Fund exists – to protect consumers in the event of an insolvency of a company, and to relieve the uncertainty and anxieties of policyholders as a result of that insolvency,” Roach continued.

Roach also ordered that a notice to all policyholders is required to inform them of their rights and the process of distribution that is being used for payment of claims. Denial of a claim must also be provided to policyholders in writing outlining the basis for the claim denial and the administrative process to appeal. A detailed report of the handling of claims must be submitted to Roach in his capacity as commissioner of insurance.