Harrisburg, PA; Philadelphia, PA, June 14, 2005 -- Buchanan Ingersoll Litigation shareholders Steven E. Bizar and P. Kevin Brobson recently secured a victory on behalf of firm clients, GE Frankona Reinsurance Co., Ltd. and ERC Frankona Reinsurance (III), Ltd., collectively known as "Eagle Star." It is the culmination of nearly three years of litigation adverse to the statutory receivers of Legion Insurance Company (In Liquidation) and Legion Indemnity Company (In Liquidation) over the proper accounting for amounts due and owing Eagle Star as a reinsurer of the two companies under a particular property insurance program.

Sister companies Legion Insurance and Legion Indemnity participated in a property insurance program in 1998 and 1999 called the Global Managers Inc., or “GMI” Program. Both companies operated jointly under the program under the banner “Legion” or “the Legion Companies.” Eagle Star was a quota share reinsurer on the GMI Program.

During the life of the program, "Legion" reported amounts due and owing to its reinsurers on a combined basis. It did not account separately to the reinsurers on the program for Legion Insurance business and Legion Indemnity business. In March 2002, Legion issued an account statement to Eagle Star that showed that "Legion" owed Eagle Star in excess of $2 million.

Shortly after they issued the combined March 2002 account statement, the companies went into separate receivership proceedings in their respective states --Legion Insurance in Pennsylvania and Legion Indemnity in Illinois. In August of that year, the Legion companies reissued the earlier March 2002 account statement, but this time separated Legion Insurance and Legion Indemnity business. In that statement, Legion Indemnity demanded that Eagle Star pay Legion Indemnity approximately $12.2 million, even though the statement showed that Legion Insurance owed Eagle Star in excess of $14 million.

With the demand that Eagle Star pay Legion Indemnity approximately $12.2 million, Eagle Star became concerned that the receiver for Legion Indemnity might draw down on letters of credit that Eagle Star posted as part of the GMI Program. Bizar and Brobson filed an action in the United States District Court for the Eastern District of Pennsylvania in October 2002, challenging the propriety of the post-receivership August account statement. They also secured preliminary injunctive relief, prohibiting Legion Indemnity from drawing down on the letters of credit.

Legion Insurance and Legion Indemnity both moved to dismiss the federal lawsuit, claiming that the issue over the validity of the August account statement must be resolved as part of the separate state receivership court proceedings. On March 18, 2003, the federal court stayed the federal lawsuit and directed Eagle Star to seek permission from the state receivership courts to go forward with its federal lawsuit.

Bizar and Brobson first sought relief on Eagle Star’s behalf from the Pennsylvania Commonwealth Court, which is the court overseeing the Legion Insurance receivership. The Commonwealth Court granted Eagle Star permission to proceed with the federal lawsuit on July 25, 2003.

They then sought the same relief from the Circuit Court of Cook County, Illinois, Chancery Division, which is the court overseeing the Legion Indemnity proceeding. Shortly thereafter, the Legion Insurance receiver filed a notice with the Illinois court, indicating that it would be willing to resolve the accounting issue with Eagle Star as part of the Legion Indemnity receivership proceeding. Based on that consent, in November 2003 the lllinois court refused to grant Eagle Star’s request to proceed in federal court and, instead, authorized Eagle Star to proceed to resolve the issue as part of the Legion Indemnity receivership.

Bizar and Brobson promptly applied to the Commonwealth Court for an order, declaring invalid the consent of the Legion Insurance receiver to litigate in Illinois, while at the same time filing the necessary papers to commence an action in the Legion Indemnity receivership proceeding to have the accounting issue resolved.

In response to the application to declare the consent of the Legion Insurance receiver invalid, the Commonwealth Court raised sua sponte concerns with the Legion Insurance receiver about the post-receivership accounting for the GMI Program and, specifically, whether the Legion Insurance receiver lawfully issued the August 2002 account statement that was the subject of Eagle Star’s claim in its federal lawsuit and, subsequently, in the Legion Indemnity receivership proceeding. The Commonwealth Court ordered the Legion Insurance receiver to file a report on the GMI Program and a memorandum of law in support of her decision to issue the disputed August 2002 account statement. On behalf of Eagle Star, Bizar and Brobson responded to the Legion Insurance receiver’s filings, pointing out numerous deficiencies in both the factual and legal presentation of the Legion Insurance receiver. In response, the Commonwealth Court scheduled a hearing and directed the Legion Insurance receiver to show cause at the hearing why, inter alia, the court should not declare the August 2002 account statement void. Bizar and Brobson represented Eagle Star during pre-hearing discovery, at the hearing, and by filing post-hearing briefs with the court.

In a December, 2004, Opinion and Order, the Commonwealth Court ruled that Legion Insurance was bound by the March 2002 account and ruled that the August account was an improper attempt by the Legion Insurance receiver to restate and, thus, avoid the pre-receivership position of the parties to the detriment of Eagle Star. 

On the client's behalf, Bizar and Brobson promptly filed a motion with the Illinois court in the Legion Indemnity receivership, asking the court to rule in Eagle Star’s favor with respect to the invalidity of the August account statement in light of the Commonwealth Court’s recent decision. In the motion, the attorneys argued that the Illinois court was required to extend full faith and credit to the Commonwealth Court's decision and that, accordingly, the court should dismiss the lawsuit as moot and rule that Legion Indemnity is bound by the Commonwealth Court's ruling as a matter of res judicata.

In a June 9, 2005, Memorandum Opinion and Order, the Illinois court granted that motion and found that although Legion Indemnity was not a named party to and did not directly participate in the Commonwealth Court proceeding, it was nonetheless bound by it due to its close relationship with Legion Insurance as well as its failure to intervene in the Commonwealth Court proceedings.

About Bizar

Steven E. Bizar is a shareholder in Buchanan Ingersoll's Philadelphia office, co-chair of the firm's Litigation Section and a member of its Insurance and Reinsurance Practice Group. He is also a member of the firm's Board of Directors.

Bizar handles complex business disputes in federal and state courts and before arbitration panels, both locally and throughout the country. He represents clients in government antitrust and securities fraud investigations and enforcement proceedings and before administrative agencies and self-regulatory organizations, like the NASD or NYSE. He has broad experience in the defense and trial of multi-district class actions, including class actions filed under federal and state antitrust laws, the federal securities laws, state consumer fraud statutes and involving alleged mass torts.

About Brobson

P. Kevin Brobson is a shareholder in the Harrisburg Litigation Section of Buchanan Ingersoll. He is a member of the firm's Insurance and Reinsurance Practice Group.

Brobson's practice is national in scope. He has represented stock and mutual insurance companies, health maintenance organizations (HMOs), captive insurance companies, nonprofit health plan corporations (Blues), risk retention groups, and reinsurers in insurance regulatory matters, arbitrations, and litigation in state and federal courts throughout the country. He serves as regulatory counsel for two title insurance rating organizations. In addition, since joining the firm in 1996, Kevin has guided clients through the insolvencies of several major insurance companies.

About the Firm

Buchanan Ingersoll is one of the 120 largest law firms in the United States. The firm's principal offices are in the cities of Harrisburg, Philadelphia, Pittsburgh, Alexandria, New York, Princeton, Cleveland, Miami, Tampa, Washington, D.C., Wilmington and San Diego.