In order for the Scheme to be implemented, it must be supported by a majority – representing no less than 75 percent in value – of claimants voting at the meeting. Stronghold currently expects this hearing to occur in January 2019.
If the court permits Stronghold to pursue a Scheme, a “Scheme Meeting” will be held at which claimants will vote on the proposed Scheme. According to Stronghold, claimants are entitled to attend and be represented at the initial hearing and issues not raised at the initial hearing could be waived. Stronghold intends to request permission to pursue its Scheme during an initial hearing that the company currently expects to occur on October 9, 2018. Procedure for approving Stronghold’s Scheme On the other hand, insurers seeking approval of a scheme (including Stronghold) often assert that such arrangements preserve money for the payment of claims by reducing the amount of administrative costs that would be incurred over several years of managing a run-off. Others have argued that insurers that are still solvent should not be able to avoid handling and paying claims in the regular course of business – and avoid defending their coverage decisions in court should a dispute arise over coverage. Policyholders have sometimes objected to proposed schemes on the grounds that they improperly reduce the coverage available for claims. Once amounts owed are reimbursed according to the Scheme formula, the insurance company is released from future claims and any obligations under its policies and typically winds down its operations. When a scheme is approved by a court, insureds must submit requests for payment of claims by a specific bar date and typically are prevented from contesting an award for their claim in courts or by arbitration. It is a statutory procedure under English law that allows an insurance company to bring finality to its business by accelerating the payment of claims under its policies according to detailed timing and valuation formulas. As a result, last month it issued a letter to potential insureds and their representatives announcing its intention seek to conclude its run-off and wind down its operations by obtaining approval of a Scheme.Ī solvent scheme of arrangement is a common method used by UK-based insurers to close up shop. But Stronghold recently failed to meet minimum capital requirements imposed by English law. Partly because of the volume and high value of these claims, Stronghold ceased issuing new coverage in 1985 and entered into run-off – focusing its operations on paying claims under its historic policies. For several decades, corporate policyholders have obtained significant coverage under these policies for long-tail or latent-injury claims and suits alleging liability for environmental pollution, asbestos exposure and other mass torts.
These policies typically were written to provide coverage for an “occurrence” – such as a release of pollutants or exposure to disease – that takes place during the term of the policy. During this time, U.S.-based companies (including those with manufacturing and industrial operations) commonly purchased insurance issued by London Market companies like Stronghold as a component of their excess liability insurance programs. As a London Market Insurance company, Stronghold underwrote excess and stop loss coverage for insureds from 1962 through 1985.
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