American Investors? Policyholders Left in Lurch During Liquidation Appeals

At one time, Gary Caskey thought paying his medical insurance premiums meant he was covered.

That was before his insurance company, American Investors Life Insurance Co. of Little Rock, was forced into receivership in July 2000 and then ordered to liquidate in February.

While that would have been the end of the story for most companies, American Investors and its owner, Bob Fewell, chose to fight by filing appeal after appeal.

For the first time, the Arkansas Life and Health Insurance Guaranty Association, which pays insurance claims owed by failed insurance companies, has its hands tied and can’t pay off the claims. This has forced several former policyholders, including Caskey and seven fellow employees of Magnolia-based Unit Structures LLC, to defend themselves from creditors.

As oral arguments were made last week in one of American Investors’ appeals, policyholders hoped there would finally be action on their claims.

American Investors’ attorney Sam Perroni of Little Rock said the claims could have been paid if state Insurance Commissioner Mike Pickens and his appointed receiver, Steve Uhrynowycz, hadn’t improperly handled American Investors’ funds.

“So if there’s not enough money in there now, people need to be looking at the insurance commissioner and the receiver, not American Investors,” Perroni said.

The Arkansas Insurance Department would not respond to Perroni’s charge of mishandled funds because the issue is pending in court, spokeswoman Charlye Crawford said. She said the liquidation process is holding up the payment of claims by the guaranty association, which can’t pay claims until a final order is issued.

While the appeal process drags on, several policyholders and hospitals are looking for someone to pay their claims.

St. Vincent Health System said it is owed $1 million.

“We saw this coming some time ago and planned for it,” said St. Vincent spokesman Scott Mosley. “We reserved for it … as an anticipated loss.”

He said St. Vincent would take steps to collect the money.

Frustrated with the delays, Unit Structures hired Magnolia attorney Mike Kinard to help.

“It’s just a situation where the individual policyholder can’t afford to take on the system,” Kinard said. “They’re just caught in a stalemate between two great big business and governmental entities.”

Even though he isn’t a party in the case, Kinard filed a brief Aug. 29 pleading with the state Supreme Court to hurry its final ruling.

Kinard said eight Unit Structures employees with bills totaling $65,000 are waiting on payment from American Investors. (Crawford said the Insurance Department has no way of determining the number of outstanding claims because of the way the claims are recorded.)

The policyholders “have been waiting, perhaps too patiently, for this court to finalize the orders of the Circuit Court authorizing the liquidation of American Investors Life insurance Co.,” Kinard said in his brief.

With the liquidation order finalized, the guaranty association could start paying medical claims, “which should have long ago been paid by American Investors Life Insurance Co.,” he said.

Kinard has tried to pacify the creditors hounding Unit Structures employees, who have outstanding claims ranging from $181 to $24,240. Kinard also contacted the medical care providers and said he has gotten good results.

“Nobody has actually started lawsuits that would lead to garnishes,” he said. “We’ve tried to explain to them that the legal process takes a long time.”

Caskey Case

Gary Caskey, who works in Unit Structures’ Raleigh office, had two past-due medical accounts that totaled $2,215.

He received a call Aug. 1 from a credit bureau collection division officer saying it would settle the accounts for $1,500, but the offer would only stand for 48 hours, Caskey said in a letter to Kinard.

If he didn’t pay, the bureau would file for a judgment for the full amount plus court costs and attorney’s fees, which would bring the total to $4,400.

Caskey, concerned about his credit rating, borrowed $1,500 and paid the bill.

“I did explain that [Kinard is] attempting to force payments to be made, and I assured [the collection agent] the bill would be paid,” Caskey said. “She said the hospitals had decided not to wait any longer.”

Kinard said the guaranty association has indicated that it will pay Caskey back once the liquidation order is finalized.

“But the problem we have is that by that time, he spent all sorts of effort and time,” Kinard said. “If the company he worked for wasn’t employing us to try and help him, he’d be out there without any assistance.”

The receiver has suggested policyholders placate providers by paying the deductibles and copayments which will be owed regardless of insurance payments.

New Territory

American Investors was the first company to paralyze the Arkansas Life and Disability Insurance Guaranty Association by fighting the liquidation order. The association, which was created in 1989 to bail out policyholders if an insurance company becomes insolvent, would place expended funds at risk if it paid claims without the final liquidation order, Allan W. Horne, an attorney for the guaranty association, said in a Aug. 2 letter to state Sen. Percy Malone, D-Arkadelphia.

“The delay in this case has occurred because of what I consider the abusive use of the appeal process permitted by current law,” Horne said.

Perroni disagrees.

“All we’re trying to do is to demonstrate to the courts that we were not given proper opportunity to respond to contentions that were being made against us,” he said. “If this matter would have been handled as it should have been handled, then none of this would have ever happened.

“It didn’t have to come down this way,” he said. “People didn’t have to be put in the position that they are in now. The Insurance Commissioner and the receiver chose to do it, not us.”

To get some relief, Pickens lobbied the state Legislature in its 2001 session to adopt the National Association of Insurance Commissioners’ insurers rehabilitation and liquidation model act. The bill would have reduced the time an insurance company had to file an appeal from a liquidation order from 30 days to five, Horne said. And the state Supreme Court would be required to expedite the appeal.

“The entire process could be completed in a matter of a couple of months, depending on the time frame spelled out in the bill,” Horne said.

Perroni said the bill included other items that would have protected the Insurance Department “when they don’t follow the law when they place an insurance company in receivership.”

The bill passed in the House but died in a Senate committee — mainly, according to House sponsor Steve Naper, D-Little Rock, because the bill was nearly 70 pages long and came at the end of the session.

“There were too many questions raised about it,” Naper said. “There wasn’t time enough to go through it and be comfortable with all the provisions.”

Kinard said in a letter to Sen. Malone that it was a shame that the legislation didn’t pass because the appeal process would have been over.

“And the employees of Unit Structures LLC, and I’m sure thousands of others in Arkansas, would now be processing their claims for payment instead of defending against credit collection agency demands,” Kinard wrote.

Appeals

The flash point for American Investors came on June 30, 2000, when Fewell defaulted on a $1.4 million promissory note. Within two weeks, the Insurance Department forced the 12-year-old health insurer into court-ordered receivership.

At the time, American Investors was the state’s second-largest insurer with 12,675 policyholders and $37 million in annual premiums.

After the receiver was appointed, American Investors filed a motion to have the order of receivership set aside and dismissed. Arguments were heard in Pulaski County Circuit Court on Aug. 4, 2000, but the ruling wasn’t changed.