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Answering to the Regulators
Insurance companies, like any other segment of today's fragile economy, have shareholders, creditors, insureds, and regulators to whom they are answerable. They are hardly immune from the ups and downs of so-called new economy companies, nor the more time-tested old economy companies. As such, what is the likely result from a jurisdictional and regulatory standpoint of an insurance company seeking relief by the filing of a bankruptcy proceeding? At first glance, the answer seems quite simple. Pursuant to 11 USC Section 109(b)(2), domestic insurance companies are not eligible to be debtors under Chapter 7. That having been said, what has happened in the Conseco bankruptcy proceedings and in other 'insurance' bankruptcy proceedings are worth reviewing.
Most insurance companies are regulated and licensed by state governments and must fulfill certain reporting requirements and meet certain financial standards. Typically, a state will have a division of insurance or a department or agency of insurance. What complicates the cross-over of a regulatory and bankruptcy analysis is that insurance companies have migrated over the past decade or two into so many other businesses and are typically viewed today as full-service financial companies. Conseco is the classic 'holding' company with a wholly-owned entity that is an insurance company.
If an insurance company, as distinct from its full-service financial company parent entity, seeks the protection of the bankruptcy court, the likely result is a dismissal. If the holding company files, the result is different. Perhaps, though, an argument could be made that a specialized insurer ' focused on one industry or exposure ' could be subject to the jurisdiction of the bankruptcy court. The health care industry may well be the most instructive setting to determine how insurance companies, regulators and bankruptcy courts will react to an insurance company seeking the protection of the bankruptcy court.
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